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USDA Loans

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What is a USDA loan?

A USDA loan, also known as USDA mortgage, is a loan issued
through the USDA Rural Development Guaranteed Housing Loan Program by the U.S.
Department of Agriculture. One of the least-known mortgage programs in the
market, the USDA loan program gives home-buyers with a low to moderate income a
way to own a safe, modest, and sanitary dwelling in rural areas that are
eligible under the program.

How is a USDA mortgage different from other loans?

What sets the USDA loan apart from the other types of
mortgage loans is the fact that it offers zero down payment mortgages with 100%
financing, and comes with highly competitive interest rates.

What are the regions considered as ‘rural areas’ for the purpose of a USDA mortgage?

As these loans include only rural regions, the USDA
takes a highly liberal stance when it comes to declaring locations as ‘rural
areas’; the program includes suburban areas and even suburbs of metropolitan
areas in its zone of lending.

Are there different kinds of USDA loans?

USDA offers not just one, but three different types of loans which are:

1.    Guaranteed loans

2.    Direct loans

3.    Repair Loans & Grants

What are guaranteed loans?

Under the terms of a guaranteed loan, the USDA assists
approved lenders such as financial institutions and state housing agencies in
providing the low-income home-buyers with the necessary funds to purchase a
dwelling by guaranteeing up to 90% of the entire loan amount. This effectively
reduces the risk undertaken by the lender to a huge extent and lowers the costs
associated with the loan in the process. It is a win-win situation for both the
lender as well as the borrower.

For what purposes can the money borrowed under a guaranteed loan be used?

With the funds disbursed through this program, the
borrower can either build, rehabilitate, improve or relocate a dwelling in
eligible areas.

Are there any eligibility criteria that the borrower needs to satisfy?

In order for an applicant to be eligible for guaranteed loans, he or she has to satisfy certain criteria, which are as
follows:

·
The applicant should either be a U.S. citizen, a U.S.
non-citizen national, or a qualified alien

·
The applicant should agree to use as his or her
primary residence the home being bought with the loan funds

·
The applicant should meet the income-eligibility criteria
as stipulated by the USDA (the income limits vary by location and also depend on
the size of the household)

·
The applicant should be legally capable of fulfilling the
obligations associated with the loan

·
The applicant should not have been either suspended or
debarred from participation in any federal programs

·
The applicant should only purchase a property that
satisfies all the program criteria

·
The applicant should indicate his willingness to meet
the credit obligations on time

What are direct loans?

Apart from providing guaranteed loans through lenders, the USDA also
issues direct rural home loans. These direct loans are also referred to as
Section 502 Direct Loan Programs, and cater specifically to home-buyers that
are in the low and very-low-income bracket. This program intends to reduce the
mortgage payment for a brief period of time through payment assistance.

Are there any eligibility criteria that the borrower needs to satisfy?

Similar to guaranteed loans, the applicants must satisfy a set of
conditions in order to be qualified for the direct loan. These conditions are
as follows:

·
The applicant should possess an adjusted family income
that is equal to or below the income limits for the area in which they wish to
purchase a house.

·
The applicant must indicate his willingness to meet
the credit obligations on time

·
The applicant should not possess any decent, safe, and
sanitary housing

·
The applicant should agree to use the home being
bought as his or her primary residence

·
The applicant should be legally capable of fulfilling
the obligations associated with the loan

·
The applicant should either be a U.S. citizen or meet
the requirements for non-citizens

·
The applicant should not have been either suspended or
debarred from participation in any federal programs

·
The applicant should not have been able to obtain any
alternative source of loan whose terms and conditions can be expected to be met

Are there any criteria that the property being financed under a direct loan is required to meet?

Apart from these criteria, the USDA also specifies certain conditions that the property being financed through these direct loans should
meet –

·
The property must be modest in size (with respect to
the area)

·
The property should not have any in-ground swimming
pools

·
The property should not be designed or used for income
producing activities

·
The market value of the property should not exceed the
loan limits applicable in the area

What about the interest rates on direct loans?

The interest rates for direct loans are fixed and are very
competitive; with payment assistance, the rate can be as low as 1%.

What is the payback period associated with a direct loan?

The USDA offers a liberal payback period of 33 years,
with an extension of up to 38 years for applicants under the very-low-income
bracket.

What are repair loans & grants?

The USDA provides loans not only to prospective
home-buyers, but also to existing home-owners who fall under the ’very low income’
bracket to repair, renovate, improve, or modernize their homes. These loans are
also known as the Section 504 Home Repair Program. Under this program, the USDA
also gives out grants to elderly home-owners under the ‘very low income’
bracket so that they can take care of their health and safety by removing any
hazards that may exist in their homes.

Who is eligible to receive a repair loan?

To qualify for this program, the applicant must satisfy the following conditions:

·    The applicant must be a home-owner and occupy the
house

·    The applicant’s family income should be below 50% of
the median income of the area the house is situated in

·     The applicant should not have been able to obtain any
alternative, affordable source of loan

·     If the applicant wishes to get a grant from USDA, he
or she must be 62 years of age or older, and must not possess the ability to
repay a repair loan

What is the disbursement limit for a repair loan or grant?

The USDA has set certain maximum disbursement limits for
such loans and grants, which are as follows:

·     The maximum amount of loan available under the repair
loan program is $20,000.

·    The maximum amount of grant available is $7,500 in a
lifetime.

·     An applicant can combine both a loan and a grant for
up to $27,500 in assistance.

In order to receive more than $7,500 as a loan, the applicant must
possess full title service to the house. The interest rate for the loan is
extremely low at 1% with a long tenure of up to 20 years.

What are the financing guidelines for a USDA Mortgage?

Although there are no set amount of mortgage loan limits on a USDA loan. The loan limit is only determined-based on underwriting approval-by your debt to income (29%/41% ratios). This means that the mortgage payment including principal, interest, insurance and taxes (PITI) cannot exceed 29% of your income or exceed 41% with all other monthly payments combined.  The USDA will allow you to take on a greater debt ratio if your credit score exceeds 660. Other limitations are that the property must be in a specified USDA approved target geographic location, you meet a low income income qualification requirement with a minimum credit score of 640, you can show a dependable 24 month income stream, do not own any other property and you are a US citizen or permanent resident.

 What fees are associated with a USDA Mortgage?

A USDA loan transaction requires a 2% upfront fee which can be built into the overall loan.

Does a USDA Mortgage require mortgage insurance?

You will have to pay a mortgage insurance premium if you choose to put a small or no down payment.

What are the program qualification guidelines by county for a USDA Mortgage in the San Francisco Bay Area?

Click Here for the USDA Mortgage Availability Map Tool to check by zip code:

See the chart below for qualification guidelines by county for a USDA Mortgage in the San Francisco Bay Area:

 

 

AREA 1

P R O G R A M

1 To 4 PERSONS

5 To 8 PERSONS

Napa, CA MSA

VERY LOW INCOME

$43,700

$57,700

Napa, CA MSA

LOW INCOME

$70,550

$93,150

Napa, CA MSA

MOD.INC-GUAR.LOAN

$101,400

$133,850

AREA 2

P R O G R A M

1 To 4 PERSONS

5 To 8 PERSONS

San Francisco-Oakland-Hayward, CA MSA   Oakland-Fremont, CA HUD Metro FMR Area

VERY LOW INCOME

$48,750

$64,350

San Francisco-Oakland-Hayward, CA MSA   Oakland-Fremont, CA HUD Metro FMR Area

LOW INCOME

$98,100

$129,500

San Francisco-Oakland-Hayward, CA MSA   Oakland-Fremont, CA HUD Metro FMR Area

MOD.INC-GUAR.LOAN

$141,000

$186,100

AREA 3

P R O G R A M

1 To 4 PERSONS

5 To 8 PERSONS

San Francisco, CA HUD Metro FMR Area

VERY LOW INCOME

$61,500

$81,200

San Francisco, CA HUD Metro FMR Area

LOW INCOME

$106,700

$140,850

San Francisco, CA HUD Metro FMR Area

MOD.INC-GUAR.LOAN

$153,400

$202,500

AREA 4

P R O G R A M

1 To 4 PERSONS

5 To 8 PERSONS

San Jose-Sunnyvale-Santa Clara, CA MSA,  San Benito County, CA HUD Metro FMR Area

VERY LOW INCOME

$40,550

$53,550

San Jose-Sunnyvale-Santa Clara, CA MSA,  San Benito County, CA HUD Metro FMR Area

LOW INCOME

$64,900

$85,650

San Jose-Sunnyvale-Santa Clara, CA MSA,  San Benito County, CA HUD Metro FMR Area

MOD.INC-GUAR.LOAN

$93,300

$123,150

AREA 5

P R O G R A M

1 To 4 PERSONS

5 To 8 PERSONS

San Jose-Sunnyvale-Santa Clara, CA HUD Metro FMR Area

VERY LOW INCOME

$55,800

$73,650

San Jose-Sunnyvale-Santa Clara, CA HUD Metro FMR Area

LOW INCOME

$92,950

$122,700

San Jose-Sunnyvale-Santa Clara, CA HUD Metro FMR Area

MOD.INC-GUAR.LOAN

$133,600

$176,350

AREA 6

P R O G R A M

1 To 4 PERSONS

5 To 8 PERSONS

Santa Cruz-Watsonville, CA MSA

VERY LOW INCOME

$50,400

$66,550

Santa Cruz-Watsonville, CA MSA

LOW INCOME

$81,850

$108,050

Santa Cruz-Watsonville, CA MSA

MOD.INC-GUAR.LOAN

$117,650

$155,300

AREA 7

P R O G R A M

1 To 4 PERSONS

5 To 8 PERSONS

Santa Rosa, CA MSA

VERY LOW INCOME

$41,300

$54,500

Santa Rosa, CA MSA

LOW INCOME

$65,900

$87,000

Santa Rosa, CA MSA

MOD.INC-GUAR.LOAN

$94,750

$125,050

AREA 8

P R O G R A M

1 To 4 PERSONS

5 To 8 PERSONS

Vallejo-Fairfield, CA MSA

VERY LOW INCOME

$41,300

$54,500

Vallejo-Fairfield, CA MSA

LOW INCOME

$65,800

$86,850

Vallejo-Fairfield, CA MSA

MOD.INC-GUAR.LOAN

$94,600

$124,850

AREA 9

P R O G R A M

1 To 4 PERSONS

5 To 8 PERSONS

Lake County, CA

VERY LOW INCOME

$29,450

$38,850

Lake County, CA

LOW INCOME

$47,100

$62,150

Lake County, CA

MOD.INC-GUAR.LOAN

$75,650

$99,850

AREA 10

P R O G R A M

1 To 4 PERSONS

5 To 8 PERSONS

Mendocino County, CA

VERY LOW INCOME

$30,450

$40,200

Mendocino County, CA

LOW INCOME

$48,700

$64,300

Mendocino County, CA

MOD.INC-GUAR.LOAN

$75,650

$99,850

 

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