First-time homebuyers in the Triangle have numerous opportunities to take advantage of programs that will help them achieve the dream of homeownership in 2021. From first-time homebuyer tax credits to down payment grant programs, new buyers have several incentives designed to help them with their purchases.
One of these opportunities is the USDA mortgage program, which is specifically designed to provide residents of rural areas with great benefits to ensure homeownership is possible.
What is the USDA mortgage?
The U.S. Department of Agriculture (USDA) mortgage program is part of the USDA’s Rural Development Guaranteed Housing Loan program, which is specifically designed to serve residents in rural areas who haven’t been able to obtain conventional financing but have stable, low-to-moderate income.
The benefits of a USDA loan are many. For starters, the loan provides buyers with the ability to finance with no down payment. The loan also ensures buyers have both a low mortgage insurance rate and a below-market interest rate. Next, a buyer has specific “ability to repay” standards to meet. Those standards include the following:
- A buyer cannot make more than 150 percent of the local median income
- A buyer’s credit must be at least 640
- A buyer’s debt ratio must be below 41 percent
- If you meet those standards, the next step is to consider where to buy.
Are any Triangle communities considered ‘rural’?
The USDA determines which communities are considered “rural” based upon zip codes, and across the country, these communities typically consist of a population below 35,000. While the metropolitan areas of Raleigh-Durham are not eligible for a USDA loan, keep in mind that there are several rural or semi-rural communities surrounding the cities that can qualify.
For example, Rolesville is an eligible area, even though it’s just minutes from downtown Raleigh. Hillsborough, which is a short drive to both Durham and Burlington, is also a USDA-eligible area. The USDA provides a Property Eligibility Finder, which allows you to input a home’s address to determine if it meets the USDA requirements.
In Rolesville, the median household income is approximately $114,000, so a homebuyer with a median household income of less than $131,000 should qualify for a USDA loan. In Hillsborough, meanwhile, the median household income is approximately $56,000, which means a median income of less than $64,000 should qualify.
It’s important to speak to your Realtor and a loan officer to properly calculate your income and determine whether you’ll qualify for a USDA loan.
Things to remember about the USDA loan
First of all, all government-backed loans, including the USDA loan, are only for a primary residence. If you’re purchasing a second home or looking for a rental opportunity, you will not be eligible for this loan.
Next, there is a fee that is tucked into your loan to ensure your lender is compensated if you default on your loan. This “guarantee fee” is 1 percent of your loan amount, which is rolled into your mortgage. In addition, a .35 percent annual fee is paid monthly as part of your mortgage. Keep those fees in mind as you talk to your Realtor and lender to ensure you remain within your budget.
Finally, be sure to look for a Realtor and lender who are experienced with the USDA program to ensure you qualify and to help you find the right home for your needs. With the right person on your team, the USDA loan can help you secure the perfect home for your needs.
Thinking about buying a home in the Raleigh-Durham metro area? Check out this list of local professionals with the Jim Allen Group.
The Jim Allen Group is a nationally recognized and award-winning real estate team in Raleigh, North Carolina – ranked the #1 Coldwell Banker HPW Sales Team in the nation.