USDA home loans are made possible by the U.S. Department of Agriculture. USDA loans are for home buyers in less populated areas of the country and are intended to help promote homeownership in those areas. That’s why this type of loan is also known as the USDA Rural Development Loan (RD Loan). But don’t get the wrong idea about USDA loans, you don’t need to buy a farm or live in a rural area. Many USDA properties are in suburbs just outside of densely populated cities.
How Do USDA Loans Work?
USDA eligibility involves certain locations and income levels, so applying for this loan means the applicant, household and the property will need to meet certain requirements. USDA loans are issued by a participating mortgage lender and are guaranteed by a government agency (USDA), similar to VA loans and FHA loans.
Steps to Obtain a USDA Loan:
- Get preapproved for a mortgage by contacting a lender.
- Verify eligibility by checking USDA applicant requirements. A lender can also help with this.
- Find a home you want to purchase.
- Meet USDA credit qualifying and income eligibility requirements.
- Verify the property meets USDA eligibility guidelines.
- Lender adds the property details to the loan file and submits to USDA for final sign-off.
- Lender closes the loan.
- Move in!
USDA Loan Benefits
- No down payment required
- More flexible credit score requirements
- Lower mortgage insurance rates than other loan types
- Funds can be used to make accommodations for a household member with a physical disability
- Loan can be used for purchasing and installing measures to promote energy efficiency in the home
- Helps those who can't qualify for a conventional loan become homeowners
Applicants/household must meet income limit guidelines for USDA eligibility. Borrowers must occupy the dwelling as their primary residence. Applicants must be a U.S. Citizen, U.S. non-citizen national or Qualified Alien. Property must be in an eligible area.
USDA Loan Options
- Purchase a new or existing residential property for use as permanent residence
- Refinance eligible USDA loans
- Repair or renovate an existing dwelling