USDA Mortgage in PA

If you are looking for a way to buy a home in rural Pennsylvania, you may want to consider USDA loans. Mortgages backed by the United States Department of Agriculture (USDA) are available to help low- and moderate-income borrowers buy homes in eligible rural areas.

USDA loans offer many benefits, such as low-interest rates, low down payments, flexible credit requirements, and payment assistance. In this article, we will explain what USDA loans are, how they work, and how you can apply for one in Pennsylvania.

What Are the Types of USDA Loans?

There are two main types of USDA loans: direct loans and guaranteed loans.

Direct Loan

For qualified borrowers with low incomes who cannot obtain a conventional loan, the USDA makes direct loans. Direct loans have subsidized interest rates, which means the USDA pays a portion of the interest to reduce the borrower's monthly payment.

Direct loans also have payment assistance, a subsidy that reduces the mortgage payment for a short time. The adjusted family income determines the amount of assistance. Direct loans have a maximum term of 33 years, or 38 years for very low-income borrowers who cannot afford a 33-year term.

Direct loans have no down payment requirement, but borrowers must pay a one-time loan origination fee of 1% of the loan amount. Direct loans have lower loan limits than guaranteed loans, which vary by county and state. To apply for a direct loan, contact your local USDA Rural Development office.

Guaranteed Loans

Private lenders, such as banks, credit unions, or online loan providers, guarantee loans with the USDA's backing. Guaranteed loans are available for low- and moderate-income borrowers who can afford a conventional loan but do not have enough savings for a down payment.

Guaranteed loans have market-based interest rates determined by the lender and the borrower's credit score. Guaranteed loans do not have payment assistance, but they have a longer term of up to 30 years.

Guaranteed loans have a minimum down payment requirement of 0%, but borrowers must pay a one-time guarantee fee of 1% of the loan amount and an annual fee of 0.35% of the loan balance.

Guaranteed loans have higher loan limits than direct loans, which are $548,250 for most counties in Pennsylvania. To apply for a guaranteed loan, you must find a USDA-approved lender.

What Are the Eligibility Requirements for USDA Loans?

To qualify for a USDA loan, you must meet the following eligibility requirements:

You must be a U.S. citizen, a U.S. non-citizen national, or a qualified alien.
You must have a steady and dependable income that is not more than 115% of the median income for your area. You can check the income limits for your county and state here.
You must have a credit score of at least 640 or demonstrate a willingness and ability to repay the loan. You must also have a satisfactory credit history with no outstanding judgments, collections, or delinquent accounts.

If you have had a bankruptcy or foreclosure, you must wait at least two years for bankruptcy and three years for foreclosure before applying for a USDA loan.
You must agree to occupy the property as your primary residence and not use it for income-producing activities.
You must have the legal capacity to incur a loan obligation and not be suspended or debarred from participation in federal programs.
You must purchase a property that meets the USDA's property eligibility criteria. The property must be located in an eligible rural area, defined as an area with a population of less than 35,000. You can check the property eligibility map here.

The property must also be modest in size, design, and cost and meet the USDA's minimum property standards, which include safety, sanitation, and structural quality. The property must not have a market value over the applicable area loan limit.

How do I apply for a USDA loan in Pennsylvania?

If you are interested in applying for a USDA loan in Pennsylvania, you should follow these steps:

Determine which type of USDA loan suits your needs and preferences: direct or guaranteed.
Check your eligibility for a USDA loan by reviewing the income, credit, property, and citizenship requirements.
Find a USDA-approved lender if you are applying for a guaranteed loan, or contact your local USDA Rural Development office if you are applying for a direct loan. You can find a list of USDA-approved lenders here and a list of USDA Rural Development offices in Pennsylvania here.
Complete the loan application and provide the required documentation, such as proof of income, assets, debts, identity, and citizenship. You may also need to provide an appraisal, a home inspection, and a title search for the property you want to buy.
Wait for the loan approval and closing. The USDA will review your application and determine your eligibility for the loan. If you are approved, you will receive a loan commitment letter that outlines the terms and conditions of the loan.

You will then work with your lender or USDA Rural Development Office to finalize the loan and close the deal. You will need to pay the closing costs and fees, which may include the loan origination fee, the guarantee fee, the appraisal fee, the title fee, the home inspection fee, and the escrow fee. You must also sign the loan documents and receive the loan proceeds.

What Are the Benefits of USDA Loans?

USDA loans offer many benefits for borrowers who want to buy a home in rural Pennsylvania, such as:

Low-interest rates: USDA loans have lower interest rates than conventional loans, which can save you money over the life of the loan.
Low down payments: USDA loans have no or minimal down payment requirements, which can make homeownership more affordable and accessible for low- and moderate-income borrowers.
Flexible credit requirements: USDA loans have more lenient credit requirements than conventional loans, which can help borrowers with less-than-perfect credit histories qualify for a loan.
Payment assistance: USDA direct loans have payment assistance, which can reduce the monthly mortgage payment for a short time and help borrowers with meager incomes afford a loan.
No prepayment penalty: USDA loans have no prepayment penalty, which means you can pay off your loan early without any extra fees or charges.
No maximum loan amount: USDA loans have no maximum loan amount, which means you can borrow as much as you need to buy a home as long as you meet the income and property eligibility requirements.

What Are the Drawbacks of USDA Loans?

USDA loans also have some drawbacks that borrowers should be aware of, such as:

Limited availability: USDA loans are only available for borrowers who want to buy a home in eligible rural areas, which may limit your options and preferences for location and property type.
Mortgage insurance: USDA loans require borrowers to pay mortgage insurance, an extra cost that protects the lender in case you default.

USDA direct loans have a one-time loan origination fee of 1%, and USDA guaranteed loans have a one-time guarantee fee of 1% of the loan amount and an annual fee of 0.35% of the loan balance. These fees are usually added to the loan amount and paid over the life of the loan.
Longer closing time: USDA loans may take longer to close than conventional loans because they require additional approval and review by the USDA. The USDA may also have a backlog of applications, which can delay the processing and closing of the loan.

Conclusion

USDA loans are an excellent option for borrowers who want to buy a home in rural Pennsylvania and meet the income, credit, property, and citizenship requirements. USDA loans offer low-interest rates, low down payments, flexible credit requirements, and payment assistance, making the loan more affordable and accessible for low- and moderate-income borrowers.

However, USDA loans also have some drawbacks, such as limited availability, mortgage insurance, and longer closing times, which may affect your decision and experience. Therefore, you should weigh the pros and cons of USDA loans and compare them with other mortgage options before applying for a loan. You should also consult a professional lender or financial advisor to determine the best loan option for your situation and goals.

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