Whether your heart is set on owning a small cabin in Conway or a suburban home in Bedford, a USDA loan could take you one step closer to becoming a homeowner in New Hampshire.
USDA loans, also known as Rural Development loans, are supplied by the U.S. Department of Agriculture via the USDA Rural Development Guaranteed Housing Loan Program. Designed specifically to boost the economy of rural areas, USDA loans are available to those living in less densely populated parts of the country, including the majority of NH. Although the loans are government-sponsored, lenders are entirely responsible for handling the USDA loan application process.
Want to learn more about USDA loans in NH? Here are four things you should know:
- There are two types of USDA loans in NH: the Single-Family Direct Loan and the Single-Family Guaranteed Loan. The primary difference between the two is that the USDA acts as the lender and servicer for the direct loan, whereas private lenders handle loan servicing for the guaranteed loan. Direct loans are generally reserved for very low to low-income families, while the Guaranteed loan caters to the average income borrower. USDA Guaranteed loans get their name from the fact that the USDA insures a portion of the loan in case the borrower ever defaults on their loan. The guaranteed loan comes with fewer restrictions on loan limits and home size than the direct loan; borrowers who apply for a guaranteed loan can choose between 15-year and 30-year fixed-rate options.
- USDA loans are more affordable than other loan types. Compared to conventional and FHA loans, USDA loans offer 100 percent financing with no down payment required. USDA borrowers pay very low private mortgage insurance (PMI) of .4%, which is less than half the cost of an FHA loan’s monthly mortgage insurance fee. Although borrowers are expected to pay a USDA guarantee fee, it is a one-time payment of only 1% and can be financed into the loan. As an added bonus, USDA loans are extremely straightforward, with no prepayment penalties or hidden fees.
- USDA loans are stricter than most other loan types due to their income and property eligibility requirements. Fortunately, most of NH qualifies for USDA loan property eligibility, with the exception a handful of major cities, such as Manchester and Portsmouth. If you’d like to see which areas are eligible for a USDA loan in NH, you can refer to the USDA’s mapping tool. USDA loan income eligibility varies from state to state and county to county. For example, the USDA Guaranteed loan income cap for a four-person household in Belknap County, NH, is $89,700; the income cap for a household with five members or more is $118,400. The income cap is based on gross household income, which includes the income of any household member over the age of 18, regardless of whether their name is on the loan. So, for example, if you and your partner earn a combined income of $60,000 and you have two adult children living with you who earn a combined $30,000, you would be disqualified from USDA loan eligibility.USDA loans are also less forgiving on poor credit scores and high debt-to-income (DTI) ratios than FHA loans. Most USDA-approved lenders require a FICO score of 620 or above and a standard DTI of 29%/41%.
- There are a number of ways to use a USDA loan:
- New or existing residential property to be used as a permanent residence
- A site with a new or existing dwelling·
- Special design features or permanently installed equipment to accommodate disabilities·
- Reasonable and customary connection fees, assessments or the pro rata installment costs for utilities·
- A pro rata share of real estate taxes·
- Essential household equipment (e.g. carpeting, ovens, refrigerators, washers, dryers, etc.)
- Energy efficiency installations (e.g. insulation, solar panels, double-paned glass, etc.)
- Installing fixed broadband service
- Site preparation costs
Note that only single-family homes or single-unit condominiums are eligible for purchase with a USDA loan. Many lenders mistakenly think that a condo must be on the FHA-approved list to be eligible for a USDA loan, but a qualified mortgage broker can help get a condo approved, so long as it meets Fannie Mae and Freddie Mac guidelines.
Since USDA loans are intended for lower-income areas with lower property values, the USDA does not set loan limits; instead, it evaluates borrowers on a case-by-case basis to determine their maximum loan amount. Maximum loan amounts are based on factors such as the borrower’s DTI ratio, monthly income, assets, credit score or mortgage payment history and the value of the property.
If you have additional questions about USDA loans in NH, want to find out whether you qualify for a USDA mortgage or would like to start the application process, talk to one of the qualified mortgage brokers at Blue Water Mortgage Corporation today. With years of experience serving NH, our brokers have the necessary skills and expertise to determine your eligibility and identify any other mortgage products that might suit your needs.