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4 Common Myths About USDA Home Loans

A USDA home loan may not be as widely popular as a conventional, FHA or VA home loan, but it’s an affordable option that can make homeownership more accessible. Yet, many who are eligible for these loans never apply because they assume they won’t meet the requirements for financing. 

There are many misconceptions about this program, so it’s important to do your own research and learn about this financing option for yourself. 

Here’s a look at four common myths about USDA home loans.

Myth #1: USDA loans are only for farms and homes in underdeveloped areas

A USDA loan is insured by the U.S. Department of Agriculture. For this reason, many people believe that these loans are intended for farmers, or that one can only use this loan when buying a property in an underdeveloped area. 

It’s true that a USDA loan makes homeownership more affordable and accessible in rural areas. But this doesn’t mean that you have to live in the 'middle of nowhere' to finance your home with this loan. 

The reality is, an area designated USDA-eligible may include suburbs on the outskirts of a metropolitan area. So, while a town or city may be classified as rural by the USDA, homes in the area may only be a short drive from a larger city. 

Speak with one of our experienced loan experts to learn about USDA-eligible areas near you.

Myth #2: You need a down payment

Some people think that a VA home loan is the only mortgage program that doesn’t require a down payment. However, a USDA home is another option if you’re looking for a zero-down alternative. 

Being able to purchase a home with little or no cash out-of-pocket can put homeownership within reach. You’re still responsible for closing costs with a USDA home loan; however, you may be able to include closing costs in your mortgage loan, further reducing your out-of-pocket expense. Keep in mind that you can only include closing costs in the mortgage loan if the total amount financed doesn’t exceed the appraised value of the property.

Myth #3: You can’t use a USDA loan for an investment property

A USDA home loan is for the purpose of buying a primary residence. However, it is possible to use a USDA home loan for the purchase of a multi-unit family property, but only if you plan to live in one of the units. In such a scenario, you can find tenants for the other units and collect monthly rent from them.

The same basic guidelines for getting a USDA home loan apply. The multi-unit family property must be located in an eligible USDA-designated area, and the monthly rent charged for the properties cannot exceed 30% of 115% of the median area income.

Myth #4: You need good credit to get a USDA home loan

Another myth is that you need a high credit score to qualify for a USDA home loan. The truth is that you don’t need perfect credit to be eligible for a USDA loan. In fact, you may be able to qualify for this program with a credit score between 620 and 640. But keep in mind that it’s always a good idea to manage your credit in such a way as to have as high a score as possible because that can help you to secure a lower interest rate. Borrowers with a credit score of 740 or higher typically qualify for the most favorable rates.

Think a USDA home loan might be right for you? Our loan experts at Cherry Creek Mortgage can clear up any misconceptions about this loan program and answer your questions. Along with USDA loans, we also offer a multitude of other lending programs — conventional, FHA, VA, and first-time homebuyer loans, just to name a few. Give us a call today for more information.