USDA Home Loans
For prospective homebuyers who are looking for property in a rural area, a USDA loan offers the option to purchase a home with no down payment. The USDA loan, or Rural Development Guaranteed Housing loan, is a government program that was created by the United States Department of Agriculture to incentivize people who want to purchase property in a designated rural area. These government loans are meant to help revitalize rural landscapes by increasing home ownership, encouraging development, and assisting with rehabilitation projects. If you are looking to buy a home in a rural area, the USDA home loan might be the right option.
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Substantial Benefits of a USDA Loan
The USDA loan is one of the best products on the market, and closely rivals the VA loan for most favorable terms. Although the loan is restricted to properties that have been designated by the US Department of Agriculture, here are the benefits for candidates who qualify:
- Closing costs can be rolled into the loan, so no cash is required at closing.
- Competitive and fixed interest rates, the interest rate is locked into the loan and will not be adjusted.
- More lenient credit requirements, borrowers who have gone through bankruptcy or have less than ideal credit may still be considered.
Eligibility Requirements
One thing to remember when considering this loan is that both the buyer and the property must meet specific eligibility requirements. There are two types of USDA home loans, a guaranteed loan and a direct loan. Both types of loans have specific income requirements.
With a direct loan, USDA lends directly to the buyer. To qualify for this type of loan, the buyer’s household income may not exceed 80% of the median income for the area.
With a guaranteed loan, an approved third-party lender issues the loan. The income requirements are a bit higher with this loan. A buyer can have a household income of up to 115% of the median income for that area. A credit score of 640 or higher is preferred, but exceptions will be made in some cases.
For the property to qualify for this program, it must be located in an eligible rural area. The property must be owner occupied, the USDA loan is not available for investment property or second home purchases.
Drawbacks to this loan
There are not many downsides to this type of loan, but the eligibility requirements are very specific. Although the loan is not available for every buyer, if you do qualify, this is a great option for purchasing a house in a rural area.