For those looking to move to or move within Pennsylvania, the variety of homes available can check all the boxes on almost any house hunter’s list – from a posh urban penthouse to a quaint country farmhouse. Pennsylvania is a great place to live, offering everything from large urban cities to small towns in the countryside to college towns around their renowned universities. However, when people think of living in Pennsylvania, they inevitably think of the two urban centers; Philadelphia in the east and Pittsburgh in the west. But, with 305 miles between these two cities, and over 46,000 square miles, most people don’t realize that Pennsylvania is a mostly rural state. This greatly benefits PA house hunters since much of this area qualifies for a Pennsylvania USDA loan.
It may sound odd to think of the United States Department of Agriculture (USDA) as a source for your mortgage. Still, they believe that affordable housing is crucial for the strength of communities in rural America. Offering these affordable homeownership opportunities promotes prosperity, creating thriving communities and improving the quality of life in rural areas.
So, if you don’t want to live in a big city and the combination of your income, current mortgage rates, and needing a down payment lead you to believe that your dream of homeownership is out of your reach, then a Pennsylvania USDA loan might be for you! Read on to learn about the benefits and features of Pennsylvania USDA loans.
What is a USDA Loan?
A USDA Loan is a mortgage backed by the United States Department of Agriculture designed to allow borrowers to own a home outside the city limits. These loans are specifically designed for people whose income may not qualify for a conventional mortgage and feature interest rates significantly below the market rate. On top of that, these loans have a little less strict requirements for credit, and other requirements versus conventional loan products, and as a bonus, they often require a minimal or no down payment. This makes a Pennsylvania USDA loan a very attractive option to PA home buyers.
What are the benefits of a Pennsylvania USDA loan?
There are many benefits of a USDA home loan, including:
- No down payment is required – Borrowers who qualify for a USDA home loan can pay nothing out of pocket for a down payment.
- Low, Fixed-Rate Mortgage – Similar to its FHA and VA counterparts, the USDA guarantees the mortgage issued by a local participating lender, allowing you to get lower-than-market interest rates.
- Flexible credit underwriting requirements – Borrowers with less-than-perfect credit, typically in the 620-640 range, may still qualify.
- Low Mortgage Insurance – Even with no down payment required, mortgage insurance rates are affordable.
- No Loan Limits – Unlike conventional and other loan programs, there are no limits on the amount you can borrow with a Pennsylvania USDA loan.
- A True No Money Out of Pocket Loan – Even with a no down payment Pennsylvania USDA loan, you will still have the normal home closing costs. However, the USDA allows the seller to contribute up to 6% of the sales price as “Seller Assistance” so that the buyer can finance the closing costs into the loan. This means the buyer will likely not be required to bring any money to the closing.
- No Prepayment Penalty – you can pay your loan ahead of schedule with no prepayment penalty.
Are there any restrictions or downsides to a Pennsylvania USDA loan?
Pennsylvania USDA loans are a great option for first-time buyers, but they are designed for all types of home buyers. However, they can only be used for a primary residence, so you cannot own more than one home with a USDA mortgage at one time. It would be best to explore other options to buy an investment property, second home, or vacation home. At closing, you will sign paperwork attesting that you will use the home as your primary residence for at least one year. After that year, if you decide to purchase a new home and keep your USDA home as a rental property, you will have to explore other options for financing or refinance the USDA home to a non-USDA loan.
To qualify for a Pennsylvania USDA loan, the borrower(s) must meet the USDA Mortgage Income Guidelines. There are income limits set by the PA government that your household cannot exceed, mostly derived from what the US Census Data deems “Moderate Household Income.”
In addition, the property must be in an eligible area and livable condition with no major repairs needed. You won’t have to stray too far from the bustling metro areas of PA to find a USDA-eligible area. The majority of the 67 PA counties are fully or mostly eligible for a Pennsylvania USDA loan, except Philadelphia County, the only county that is completely ineligible.
Are there different types of Pennsylvania USDA loans?
USDA Rural Development presents qualified individuals and families with the prospect of purchasing or building a new single-family home with no money down or repairing their existing home. Let’s take a closer look at the two principal programs that can help you buy a rural Pennsylvania home with a USDA loan.
Single Family Housing Direct Home Loans
Known as the Section 502 Direct Loan Program, this loan product helps eligible low- and very-low-income applicants obtain decent, safe, and sanitary housing in eligible rural areas through interest rate subsidies allowing higher loan amounts or better affordability.
This loan provides 100% financing and can include closing costs and home repair costs worked into the loan if the applicant is eligible. Interest subsidy assistance and eligible loan amount vary based on income, debt, and other factors. Payment assistance is a type of subsidy that reduces the mortgage payment for a short time. The amount of assistance is determined by the adjusted family income.
Several circumstances are measured when establishing an applicant’s Single Family Direct Home Loans eligibility. Applicants wanting to acquire a direct loan must have an adjusted income at or below the applicable low-income limit for the area where they wish to buy a house. They must display a willingness and ability to repay debt. The funds provided can be used to build, repair, renovate or relocate a home, purchase and prepare sites, and provide water and sewage facilities.
Typically, no down payment is required. However, you must apply directly to the USDA and be responsible for all the paperwork associated with this type of loan.
Single Family Housing Guaranteed Loan Program
This Single Family Housing Guaranteed Loan Program helps eligible low- and very-low-income applicants obtain decent, safe, and sanitary housing in eligible rural areas through interest rate subsidies allowing higher loan amounts or better affordability.
This loan provides 100% financing and can include closing costs and home repair costs worked into the loan if the applicant is eligible. Interest subsidy assistance and eligible loan amount vary based on income, debt, and other factors. This loan can be acquired by working with an approved packager of the USDA Rural Development Section 502 Guaranteed Loan Program.
The loan funds can be used to help low-income individuals or households with closing costs. They can also be used to build, repair, renovate or relocate a home or purchase and prepare sites, including water and sewage facilities. The funding amount for the total loan is based on the ability to pay. Repair loans are provided to meet habitability conditions and eliminate health and safety issues and loan approval.
The maximum loan amount you may qualify for will depend on your repayment ability. Your ability to repay a loan considers various aspects, such as income, debts, assets, and the amount of payment assistance you may be eligible to receive. Regardless of repayment ability, you cannot borrow more than the Area’s Loan Limits for the county where the property is located. https://www.rd.usda.gov/pa
We Can Help
The major difference between these two programs is how you apply for your loan.
With the Single Family Housing Direct Home Loan Program, you apply directly to the USDA yourself. You have to handle all of the paperwork and bureaucratic issues that may arise through the process yourself.
While with the Single Family Housing Guaranteed Loan Program, you can work with an approved USDA loan packager like Team Hadley. We’ll help you see the differences between loan programs, allowing you to choose the right one for you – whether you’re a first-time home buyer or a repeat buyer.
We’re here to make the Pennsylvania USDA loan process easier with tools and knowledge that will help guide you along the way, starting with our USDA Loan Qualifier.
Once you’ve found your dream rural home in Pennsylvania, the Hadley Team is here to help you. So, let’s connect today and get you on your way to homeownership!