Everything to Know About USDA Loans

Anyone who plans to buy a new home knows that there are a lot of different mortgage options out there. Some  are specially suited to help buyers purchase a home in certain areas. One, the USDA loan, is sponsored by the United States Department of Agriculture. They provide incentives to home buyers to convince them to move to rural areas. If you’re buying a farm, ranch, or in a rural area, learn about USDA loans and how they can help.

For informational purposes only. Always consult with a licensed mortgage or home loan professional before proceeding with any real estate transaction.

The Purpose of USDA Loans

Launched in 1994, USDA loans have several purposes, but the most prominent was to incentivize people to move to suburban and rural parts of America. The hope was by encouraging population growth in rural areas, the government would boost the local economies. As an added benefit, USDA loans make it easier for low-income home buyers to afford a home. They make homeownership more accessible in areas most conventional lenders won’t approve a loan.

Today, USDA Home Loan programs are available as:

• Single-family housing guaranteed
• Single-family housing direct
• Multi-family housing

Who Is Eligible for a USDA Loan?

An applicant must meet the USDA Loan qualifications, including:

• The applicant must be a United States citizen or have permanent US residency
• The applicant’s household income must be below 80% of their area’s median income
• The home must be in a USDA-approved location, which can be checked by using a map on their website
• The home must meet safety and sanitary specifications
• The applicant must have a credit score of at least 640
• The applicant has stable and dependable income
• The home must be the applicant’s primary residence

Many people who apply for loans aren’t aware of all the criteria that goes into them. Knowing a loan’s applicant criteria keeps home buyers from wasting their time applying for a loan that they aren’t eligible for. Don’t waste money on an application fee if you won’t be approved in the first place.

Other USDA Loan Features

USDA loans have many other features that may incentivize buyers to apply. For instance, USDA loans don’t require a down payment. Down payments typically run anywhere between 3% and 20% of a home’s selling price, so not having to save up that money to pay at closing can be great for buyers.

USDA loans can be guaranteed, which in turns enables the program to carry low interest rates. Direct loans can rates well under the going mortgage rate averages. In exchange for these low rates, loan holders pay a mortgage insurance premium (MIP), although the program aims to make this rate as low as possible.

Additionally, there are multiple types of USDA loans targeting different reasons. Rural Repair and Rehabilitation Grants let homeowners who already live in rural areas to repair their home. They are available to applicants who are over the age of 62. Mutual Self-Help Loans help people who don’t have adequate credit or can’t get credit from another source. These loans give buyers a mortgage with just 1% interest that lasts for 38 years.

USDA loans can be a great choice for home buyers who dream of life in the countryside, or are looking to purchase their first home in a less populated area. These loans give many people the opportunity to become homeowners while also promoting economic growth. If you meet the requirements for USDA loan eligibility, it’s definitely worth checking out.

For informational purposes only. Always consult with a licensed mortgage or home loan professional before proceeding with any real estate transaction.

Updated November 2023