If you want to purchase a home in Massachusetts but aren’t sure whether you’ll be able to finance it, you might want to consider applying for a USDA loan.
The USDA loan program is lesser-known and more often misunderstood than other similar loan programs, but it boasts a number of benefits, including 100% financing, zero down payment and lower private mortgage insurance rates. Contrary to popular belief, USDA loans are no more restrictive than any other type of loan, nor are they reserved strictly for farmers or properties in the middle of nowhere.
Because it’s our job to make sure you have the information you need to evaluate all of your mortgage options and choose the best one for you, let’s take a closer look at USDA loans in MA.
Fiction: USDA loans are only for farms.
Fact: This is perhaps the most pervasive myth about USDA loans, so you might be surprised to learn that the USDA home loan program doesn’t finance farms at all. In fact, the USDA has an entirely separate loan program specifically for farms.
Fiction: You need to live in a rural area to qualify for a USDA loan.
Fact: This misconception likely stems from the fact that USDA loans are also known as Rural Development loans. Although the USDA loan program was created in 1949 to boost the economy of rural communities, it has since expanded to include suburbs — even those on the outskirts or major cities — and small towns throughout MA.
Fiction: There’s only one type of USDA loan.
Fact: There are three types of USDA loans available to MA residents:
- The Single-Family Housing Direct Loan, also known as the Section 502 Loan Program, assists low- and very-low-income applicants and is funded and serviced directly by the USDA. The USDA direct loan has 33-year and 38-year repayment options depending on your income level.
- The Single-Family Housing Guaranteed Loan assists low- and moderate-income applicants; it is funded and serviced by private lenders but insured against default by the USDA. The USDA guaranteed loan has both 15-year and 30-year fixed-rate options.
- The Single-Family Housing Repair Loan & Grant, also known as the Section 504 Home Repair Program, enables very-low-income homeowners to improve or modernize their homes or remove health and safety hazards. All funding for this program is provided by the USDA.
Fiction: It’s difficult to qualify for a USDA loan.
Fact: Although there are eligibility requirements for USDA loans in MA, they’re no more difficult to meet than for any other type of loan. The two most important requirements are income and property eligibility, both of which vary from state to state and county to county.
The USDA income limit is based on the sum of income of all household members over the age of 18, regardless of whether their name is on the loan. The income must be less than 115% of the county’s median income. As far as property eligibility is concerned, most major cities in MA, such as Boston, Worcester and Springfield aren’t eligible. To see which areas are eligible for a USDA loan in MA, you can refer to the USDA’s mapping tool.
Fiction: Only first time buyers can qualify for a USDA loan.
Fact: Regardless of whether you’re a first time or fifth time home buyer, you can still qualify for a USDA loan, provided you only own one home at a time and use it as your primary residence (so no investment or vacation properties allowed).
Fiction: You can’t qualify for a USDA loan if you have poor credit.
Fact: The USDA home loan program is more lenient on low or non-traditional credit than the conventional loan program. Typically, you need a minimum credit score of 620 to qualify for a USDA loan in MA (compared to a minimum of 680 for a conventional loan) — however, if you don’t have an established credit history, you may still qualify. You may be able to use other forms of payment history, such as insurance payments or utility or cellphone bills, as a substitute for verifiable credit history to qualify for a USDA loan. These situations are rare, though possible and lenders evaluate borrowers with non-traditional credit history on a case-by-case basis.
As you can see, the USDA home loan program is available to a broader array of borrowers than you might have previously believed. So, whether you intend to house hunt in Western MA, purchase property on the South Shore or settle in Central MA, a USDA home loan could help you achieve your goal.
If you’d like to learn more about USDA loans in MA, including whether you qualify or how to apply, talk to an experienced mortgage broker. The dedicated team of brokers at Blue Water Mortgage Corporation have over 100 years of combined experiences helping clients finance the home of their dreams. Contact us today to find out whether you’re eligible for a USDA loan or to find out what other mortgage products are available to you.