The USDA Home Loan is a no-down-payment mortgage designed primarily for low- and middle-income homebuyers in rural areas.
The USDA Loan is part of a national program developed by the US Department of Agriculture to help first-time homebuyers or lenders who do not meet traditional mortgage requirements.
A USDA mortgage facility includes no down payment and loser credit requirements. Some disadvantages are that the property must be located in a USDA-approved area and the borrowers cannot exceed the income limit.
Table of Contents
What is USDA Home Loan?
The U.S. The Department of Agriculture (USDA) home loan program provides mortgages to low-income residents in rural areas who would not otherwise be able to get a traditional mortgage.
If you live in a rural area and cannot qualify for a traditional loan, you may qualify for a USDA Guaranteed Loan or a USDA Direct Loan.
The home loan program is primarily designed to help low-income people living in unhealthy or unsafe rural conditions get home with modern utilities and ample space.
Type of USDA Home Loan
USDA-guaranteed and direct loan programs are very different, although neither offers housing in rural areas where there is no-down-payment financing.
USDA Loan Guarantee
The USDA will guarantee 90% of the mortgage amount for eligible applicants who take out a mortgage through a bank or other commercial lender. This makes it possible for many to get approval for a 30-year fixed-rate loan without any down payment.
The guaranteed loan can be used to purchase, build, repair, renovate or relocate an initial residence.
USDA Guaranteed Loans (but not USDA Direct Loans) Borrowers must pay a loan guarantee fee of 1% of the amount borrowed. This fee can be paid by the lender. Borrowers are required to pay an annual fee of 0.35% of the loan amount.
Direct USDA Loan
Direct USDA loans come directly from the USDA and are for very low and low-income borrowers who cannot find an affordable mortgage from another source and who do not have decent, secure, and sanitized housing. The general loan term is 33 years, but the loan term can be up to 38 years.
How to get a USDA home loan
Requirements for USDA home loan. For guaranteed loans, see USDA approved list of lenders. These lenders offer USDA loans. You should shop around to make sure you are getting the best terms.
For direct loans, apply directly to USDA Rural Development. Funding for these loans comes from the government.
USDA Home Loan Offer
The US Department of Agriculture (USDA) has two home loan programs: Section 502 Guaranteed Loan and Section 502 Direct Loan. Both help low- to middle-income buyers buy homes in rural areas and small towns.
With Guaranteed Loans – 90% of the loan amount is supported by USDA. Due to the guarantee, the lenders provide these loans at a fixed rate and without any down payment.
The USDA issues direct loans to eligible buyers who cannot afford affordable mortgages from other lenders and who do not have decent, safe, and healthy housing.
Eligibility Requirements for USDA Home Loan?
The house must be located in an area with a population of 35,000 or less, and the house must be a primary residence. Loans are available for low and middle-income people.
In general, a credit score of at least 640 is ideal, but if your score is low you may still qualify.
In addition, you cannot be a criminal for a federal loan and must be a U.S. citizen or legal alien.
USDA loans vs FHA loans – which is better?
Like USDA loans, FHA loans are government-insured and offer options for individuals who may not qualify for traditional mortgage products.
Both the USDA and FHA loans offer benefits to borrowers who do not qualify for traditional mortgages. Which is best depends on the location of the home, your income, credit score, and debt understanding.
USDA-guaranteed and direct home loans help low-, low- and middle-income borrowers to get an affordable mortgage to buy a modest home without a down payment in very sparsely populated areas.
If you think you will never be able to buy a home or qualify for a mortgage or you are living in overcrowded or unsafe housing, contact USDA Rural Development and see if they have a housing program to help you.
You May Also Like: VA Home Loan Refinance