The average home price in Michigan is currently about $232,380, up nearly 4% from the year before. Nationwide and in local real estate markets like West and Northern Michigan, many would-be buyers feel priced out of the market, especially with rising interest rates. However, you may not need as much money to buy a house as you think.
There are several options that can make mortgages more affordable. Whether you’re buying a home in Michigan or beyond, you may be eligible for a USDA Home Loan if purchasing a home in an eligible “rural area,” which includes some suburban areas as well. In this article, we’ll cover everything you need to know about USDA mortgages.
What is a USDA Home Loan?
Also called a Rural Development Loan, this type of mortgage is 90% guaranteed by the U.S. Department of Agriculture’s USDA Rural Development Guaranteed Housing Loan Program. This makes it easier for lenders to offer up to 100% financing to low- and moderate-income homeowners and homebuyers in rural and suburban areas across the country, including many parts of Michigan.
How Does a USDA Loan Work?
Federal backing of home loans allows local mortgage lenders to offer 0% down payment mortgages. Meanwhile, the homebuyer doesn’t notice much difference between applying for a federally insured vs. conventional mortgage. You can apply for a USDA loan with your local bank, just as you would any other type of home loan. The application process is just like any other mortgage process, however USDA loans will require you to meet a certain income, geography, and other qualifications.
USDA loans usually take the form of a 30-year fixed mortgage. Interest rates are set by the mortgage lender but are usually below market rate. While mortgage insurance isn’t required for USDA loans, there is an annual fee of 0.35% of the loan amount that you pay in monthly increments as part of your mortgage payment.
Applicants who fall below a certain income threshold may qualify for a USDA Direct home loan. This loan program does require a direct application with the Department of Agriculture.
Types of USDA Rural Development Loans
Learn about your two options for USDA mortgage loans.
Guaranteed Home Loan Program
- Most popular USDA Loan program
- Low to moderate income
- Apply through bank
- 100% financing
- Property must be located in an eligible “rural area”
Direct Home Loan Program
- Very low to low income
- Apply directly with USDA through your local Rural Development Service Center
- 100% financing
- Property must be located in an eligible “rural area”
- 33-38 year loan term with a fixed interest rate
It’s important to note that eligible “rural areas” can include the suburbs. Check property eligibility.
How To Get A USDA Loan
The first step to getting approved for a USDA mortgage loan is to determine whether you meet the eligibility requirements. Our local, Michigan-based mortgage lenders can answer any questions you may have.
Income Qualifications
The verified income of all household members cannot exceed the income limit for your county. The following can be deducted from your gross household income:
- $480 per child under 18 or 18+ for full-time students.
- 100% of child care costs for kids under 12
- $400 and medical costs that exceed 3% of gross income
You can check current income limits for the Rural Development Single Family Housing Direct Loan Program and for the Rural Development Single Family Housing Guaranteed Loan Program.
Property Eligibility
As mentioned, you can check eligibility if the house you’re interested in is located in an eligible “rural area.” Other property requirements include:
- Must be used as a permanent residence
- Homes can be detached or attached, condos, PUDs, modular, or manufactured
- Cannot be an income-producing property
Additional USDA Loan Requirements
Finally, here are some additional requirements for USDA loan borrowers.
USDA Guaranteed
- US Citizen or permanent resident
- Proven history of dependable income
- Credit history that shows ability to repay debts.
Single Family Housing Direct Loan
- Meet income limits
- Currently without “decent, safe and sanitary” housing
- Unable to meet qualifications necessary to obtain another type of mortgage
- Not have been prohibited from federal programs
- US Citizen or eligible noncitizen
What To Do If You Don’t Meet USDA Requirements?
USDA Rural Development Loans have strict requirements, especially when it comes to income. If you don’t qualify for a USDA loan, but are still struggling to come up with a down payment, here are some other options for low down payment mortgages:
- VA Loans: Eligible service members and veterans can get a VA-backed home loan with up to 100% financing (no down payment).
- FHA Loans: This federally-insured mortgage offers a down payment as low as 3.5% for qualified borrowers.
- MSHDA Down Payment Assistance: Eligible first-time and repeat home buyers can receive down payment assistance loans from the MI State Housing Development Authority, through local lending partners like West Shore Bank.
If the house you want to buy isn’t eligible for a USDA loan based on location, consider modifying your property search to include eligible homes and areas.
Not sure which home loan option is best for you? Talk to a mortgage expert who can help you understand eligibility requirements and other home loan options that might work for you.
What is An MSHDA Down Payment Assistance Loan?
Down Payment Assistance of up to $10,000 in the form of a loan is available through the Michigan State Housing Development Authority (MSHDA). The highlights of the program include:
- For Michigan residents only
- Borrow up to $7,500 statewide or up to $10,000 in select Zip Codes
- Available to first-time homebuyers statewide and repeat buyers in certain areas
- Subject to household income limits
- Limit of $224,500 sales price
- Minimum credit score of 640
Get Help Buying A House in Michigan!
You can apply for a USDA-backed loan through a local lender like West Shore Bank. We also offer fixed-rate mortgages, ARM loans, Construction Loans, and more. Contact a mortgage lender in West and Northern Michigan to get pre-qualified before you begin your home search. You can also visit one of our locations in Ludington, Hart, Scottville, Onekama, Frankfort, Manistee, and Traverse City.
