USDA loans are no down payment mortgages for rural and suburban homebuyers. They are primarily aimed at borrowers who are not wealthy and cannot get a traditional mortgage.
Maybe you feel more at home surrounded by grass than cobblestone. In that case, buying a home might be within your reach thanks to the US Department of Agriculture’s mortgage program. In fact, the USDA may have one of the government’s lesser-known mortgage assistance programs.
A USDA home loan is a no-down mortgage for qualifying rural and suburban homebuyers. USDA Loans are provided by the United States Department of Agriculture under the USDA Loan Program, also known as the USDA Secured Home Loan Program for Rural Development.
In 2017, USDA helped around 127,000 families buy and improve their homes as part of its rural development program. The program aims to “improve the economy and the quality of life in rural America”. It offers low-interest rates and no down payment, and you will be surprised at how affordable it is.
With all types of home loans, how do you know if a USDA loan is right for you? Here is an overview of how it works and who is eligible:
How USDA Loan Programs Work
There are three USDA home loan programs:
Loan guarantees: USDA guarantees a mortgage issued by a participating local lender, similar to an FHA loan and a VA guaranteed loan so that you can get low mortgage rates without a down payment. However, if you deposit little or no money, you will need to pay a mortgage insurance premium.
Direct Loans – These mortgages issued by the USDA are intended for very low and very-low-income applicants. Income thresholds vary by region. With grants, interest rates can be as low as 1%.
Home Improvement Loans and Grants – These grants or direct financial loans allow homeowners to repair or improve their homes. Packages can also combine a loan and a grant and provide assistance of up to $27,500.
Qualify for USDA Backed Home Equity
Income limits for securing a home loan guarantee vary by location and depend on the size of the home. This USDA map and chart show the loan guarantee income limit for the county in which you live.
USDA guaranteed home loans can only finance condominiums. The other conditions of participation are:
U.S. citizenship (or permanent residence)
Monthly payment includes principal, interest, insurance, and taxes, equal to 29% or less of your monthly income. Other monthly payments you make cannot exceed 41% of your income. However, the USDA considers higher debt ratios if you have a credit score above 680.
Reliable income, typically for at least 24 months
An acceptable credit history where, among other things, no account has been converted to the collection in the past 12 months. If you can show that temporary or uncontrollable circumstances, including a medical emergency, affected your credit, you may still be eligible.
How USDA Home Loans Work
The USDA goes even further to help potential homebuyers by granting mortgages to applicants deemed most needed. It means a person or a family:
- There is no such thing as “decent, safe and healthy housing”
- You cannot get a home loan from traditional sources.
- You have an adjusted income equal to or less than the lower-income limit for the region in which you live
- USDA typically provides direct loans for homes up to 2,000 square feet and valued at 7,000 m