What Is a USDA Home Loan?

If you feel more comfortable being out in nature, buying a home is within your reach thanks to the USDA (United States Department of Agriculture) mortgage program. If you want to live in a rural or suburban area, you should apply for this zero down payment loan.  In the last year, this program has helped more than 127,000 families to upgrade or buy homes.

If you do not mind living in areas that are rural, you should consider this no down payment and low interest USDA home loan. With different types of mortgages to choose from, you need to know whether this loan is right for you.

How USDA Mortgage Programs Work

You will come across three USDA loan programs:

Direct loans – these loans are for people who earn very low incomes. With subsidies, applicants can get interest rates that are as low as 1%. The income threshold for qualifying varies depending on the region.

Loan guarantees – just like VA-backed and FHA loans, the USDA usually guarantees loans issued by participating lenders in your area. This means that you can get low-interest rate loans without a down payment. However, if you put up no or little down payment, you will have to pay mortgage insurance.

Home improvement grants and loans – these financial awards and loans allow people to repair their homes or upgrade them.

How to Qualify for USDA-backed Loan Guarantees

The income limits for qualifying for this type of loan depend on the size of a house and its location. However, these loans can only finance owner-occupied houses that are primary residences.

The requirements for eligibility are:

Monthly payment – when you include taxes, insurance, and principal interest, this should be 29 percent or less of your income. Any other debt payments that you make per month should not exceed 41% of your income. However, if you have a credit score more than 680, the USDA will consider higher debt ratios.

US citizenship – you have to be a US citizen or have permanent residency.

Dependable income – you need to show proof of a steady income for at least 24 months.

Acceptable credit history – your credit history should be good without any accounts that are converted to collections in the past year.  You can still qualify if you prove that your credit history was affected by events beyond your control.

If you have a credit score above 640, you should be able to get streamlined processing.

However, if it is lower than that, you need to meet stricter underwriting standards.

How USDA Home Loans Work

USDA gives loans to the neediest applicants, which means:

–          People who do not have sanitary and safe housing

–          People with an adjusted income or with a low income limit

–          People who cannot secure mortgages from traditional sources

The USDA mostly issues loans for houses that are less than 2,000 square feet.

Eligible Home Locations

If you want to live in a metropolitan area, you will not qualify for a USDA mortgage. Rural areas are the most eligible but suburban areas can qualify. If you want to apply for this loan, you should contact a participating lender. However, if you want a home improvement or direct loan, you should get in touch with the USDA office in your state.

Although USDA programs seem like they target ranchers and farmers, your occupation does not matter when applying. All you need is the right location and income to qualify.

A USDA home loan might seem like a long shot but you will not know whether you qualify until you contact the nearest participating lender or USDA office.