USDA
The Different Types of Mortgages
Mortgage

A USDA home loan, also called the USDA Rural Development Loan Program, is an affordable mortgage loan available to rural property owners through the United States Department of Agriculture, sometimes called the U.S. Department of Agriculture or USDA. The purpose of this loan program is to make mortgage loans in economically challenging times for rural homeowners. Through this program, the United States government can guarantee mortgage repayments for borrowers that own property in select rural areas. This is accomplished through direct loans, which are made directly to the borrower by a lender or through loans that are insured by the USDA. Either way, both the lender and the borrower benefit by meeting affordable repayment terms.

There are two types of USDA mortgages available to homeowners. The first are lower interest rate USDA loans. These types of mortgages are sometimes referred to as prime mortgages. In order to qualify for a USDA mortgage, borrowers must meet low-income and other credit criteria.

Another type of USDA-guaranteed loan is the FHA-insured mortgage. For borrowers with bad credit, this type of mortgage may be their only option. However, even if borrowers have bad credit, they can still qualify for an FHA mortgage. The only requirement for borrowers to obtain and maintain an FHA mortgage is that they own a home that is in fair or poor condition.

In general, the interest rates on USDA loans are higher than those found in commercial real estate loans. However, there are several reasons why the rates are lower. First, since the goal of USDA loans is to help home buyers become more financially stable so that they can make their monthly mortgage payments, the lender has greater incentives to approve more applications and provide a better service. Also, since these loans are backed by the USDA, any losses that occur on the loan are covered by the USDA.

Because FHA-insured loans carry less risk for lenders than traditional loans, they tend to carry less interest or a fixed rate. The lower risk means lower monthly premiums for borrowers. The opposite is also true. Lenders are not as worried about losing the money they loaned if they have a large amount of initial fees associated with the purchase. On the other hand, when buyers are already facing a financial hardship and need additional time to make their monthly mortgage payments, lenders will often charge very high rates.

Another USDA program that provides low-income or rural development loan funding is the Rural Housing Development Act (HDA). The purpose of the HDA is to promote and develop affordable housing in rural areas by providing federal funding. To be eligible for the HDA, borrowers must reside in a rural area for at least five years. In order to qualify for the program, borrowers must find a house or property that will be used as a permanent residence.

The third program available from USDA is the Home Credit Act. This program requires low and moderate-income families to apply for a certain level of financial assistance based on their credit score. Each family's credit score is evaluated by looking at their payment history, total debt, current income and assets. Only those with an acceptable credit score will be considered for financial assistance. The USDA also participates in the Consolidated Loans Program along with the Federal Housing Administration (FHA). This ensures that borrowers who obtain mortgage insurance through either the FHA or USDA are guaranteed protection against the loss of their home should they face a default on their loan.

Although it may take some time and patience to qualify for one of these programs, it is worthwhile. If a family does not qualify for one of these federal assistance programs due to a poor credit score or a negative income history, there are other sources of help available to them. A number of non-government organizations exist that can provide help to qualified families in need. In addition, they often have better interest rates than traditional credit history loans. Many of these organizations work with private lenders on a customized loan to meet the needs of the individual family.

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