A USDA loan could be a good fit for you, as long as you're aware of the potential trade-offs. Here are the good and the bad to getting this type of mortgage:
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Pros
- Low interest rate. You'll likely pay a lower rate on a USDA loan than you would on a conventional mortgage. Keep in mind that you'll get an even better rate with an excellent credit score, low debt-to-income ratio, or money toward a down payment.
- No down payment. Other than a VA loan (which is only for borrowers associated with the military), a USDA loan is the only type of mortgage that doesn't require any money upfront, making it easier to get a mortgage if you don't have a lot of money saved.
- Low insurance costs. You do need to pay for mortgage insurance with a USDA loan, but it's lower than what you'd pay with other types of mortgages. You'll pay 1% of your principal at closing, then an annual premium of 0.35% of your remaining principal. You'd pay private mortgage insurance on a conventional loan until you reached 20% to 22% equity in your home, which could take a long time and be expensive if you don't have a big down payment.
- You can refinance into another USDA loan. If you decide later that you want to refinance to get lower monthly payments or a better interest rate, you can refinance into another USDA loan.
Cons
- Location restrictions. USDA loans are for people in rural and suburban parts of the US. If you want to buy a home in the city or an area with more than 35,000 residents, you probably won't qualify.
- Income restrictions. You must be at a low-to-moderate income level (the exact number varies by county) to be eligible for a USDA loan.
- No adjustable-rate loans. You can only get a fixed-rate mortgage with the USDA program, not an adjustable-rate mortgage.
- Only single-family homes. You can't use a USDA loan to buy a multi-family home. If you aren't looking for a single-family home, you might consider an FHA loan instead.
- No cash-out refinances. A cash-out refinance is a type of loan that lets you receive cash if you've built equity in your home. You can refinance a USDA loan, but cash-out refinances aren't an option
https://www.businessinsider.com/personal-finance/usda-loan#:~:text=You'll%20likely%20pay%20a,No%20down%20payment.
