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USDA

Government-Insured U.S. Department of Agriculture (USDA) Loans

The U.S. Department of Agriculture (USDA) guarantees loans to help make homeownership possible for low-income buyers in rural areas nationwide.

These loans require little to no money down for qualified borrowers, as long as properties meet the USDA’s eligibility rules. USDA loans are best for homebuyers in eligible rural areas with lower household incomes, little money saved for a down payment, and can’t otherwise qualify for a conventional loan product.

These types of loans are mortgages backed or issued by the U.S. Department of Agriculture.  What makes this loan awesome is that it also offers home improvement loans and grants.

This type of loan is ideal for income-qualified buyers in rural and some suburban areas who want a low or zero down payment.

3 Types of USDA Loans

Loan guarantees: The USDA guarantees a mortgage issued by a participating local lender — similar to an FHA loan and VA-backed loans — allowing you to get low mortgage interest rates, even without a down payment. If you put little or no money down, you will have to pay a mortgage insurance premium, though.

Direct loans: Issued by the USDA, these mortgages are for low- and very-low-income applicants. Income thresholds vary by region. With subsidies, interest rates can be as low as 1%.

Home improvement loans and grants: These loans or outright financial awards permit homeowners to repair or upgrade their homes. Packages can also combine a loan and a grant, providing up to $27,500 in assistance.

Qualifying for a USDA-backed mortgage guarantee

Income limits to qualify for a home loan guarantee vary by location and depend on household size.

USDA guaranteed home loans can fund only owner-occupied primary residences. Other eligibility requirements include:

  • S. citizenship (or permanent residency).
  • A monthly payment — including principal, interest, insurance, and taxes — that’s 29% or less of your monthly income. Other monthly debt payments you make cannot exceed 41% of your income. However, the USDA will consider higher debt ratios if you have a credit score above 680.
  • Dependable income, typically for a minimum of 24 months.

An acceptable credit history, with no accounts converted to collections within the last 12 months, among other criteria. If you can prove that your credit was affected by circumstances that were temporary or outside of your control, including a medical emergency, you may still qualify.

How USDA-issued home loans work

Going one step further in helping prospective homebuyers, the USDA issues mortgages to applicants deemed to have the greatest need. That means an individual or family that:

  • Is without “decent, safe and sanitary housing”.
  • Is unable to secure a home loan from traditional sources.
  • Has an adjusted income at or below the low-income limit for the area where they live.

Moreover, the USDA usually issues direct loans for homes of 2,000 square feet or less, with a market value below the area loan limit.

Again, that’s a moving target depending on where you live.

Home loans can be as high as $500,000 or more in pricey real estate markets like California and Hawaii, and as low as just over $100,000 in parts of rural America.

Eligible home locations

Metropolitan areas are generally excluded from USDA programs, but pockets of opportunity can exist in suburbs. Rural locations are always eligible.

Next steps

To apply for a USDA-backed loan, talk to a participating lender. If you’re interested in a USDA direct mortgage or home improvement loan or grant, contact your state’s USDA office.

A program sponsored by the USDA might seem to be targeted to farmers and ranchers, but your occupation has nothing to do with the qualification process.

Eligibility is simply a matter of income and location.