When you think of the U.S. Department of Agriculture, the first thing that comes to mind is probably farming. But did you know anything about USDA home loan programs?
These programs can be a great option for borrowers looking to buy a home with no money down. And, no—you don’t have to be a farmer. Read on for a basic overview of a couple of these programs.
Things You Should Know
Each loan program has its own specific requirements. However, the USDA requires a few basic things of applicants for all programs:
- The property you are seeking a loan for must be in an area deemed eligible by the USDA. (Their website states that they generally define eligible rural areas as those with a population of less than 35,000.)
- The USDA sets income limits for loan recipients. These vary by household size and region. To determine these limits for your area, consult this chart: https://www.rd.usda.gov/files/RD-GRHLimitMap.pdf
- Applicants must be U.S. citizens or permanent U.S. residents.
- Applicants must agree to occupy the property as their primary residence.
- Applicants must not have been debarred from receiving federal assistance.
Breaking Down Different USDA Loan Programs
The agency offers a couple of different loan programs for single-family applicants. The term “single family” simply means that the home is a standalone property intended for one family and not a rental housing complex, such as an apartment building.
Single Family Housing Guaranteed
According to the USDA, this program is beneficial for low- to moderate-income homebuyers from eligible rural areas.
Applicants can use the funds from the loan for things like buying a new residential property, repairing an existing property, or refinancing an eligible loan. You can apply for this program through an approved USDA lender. Use Top 10 Mortgage Brokers’ directory to find one in your area: https://top10mortgagebrokers.com/usda-mortgage/.
For a complete list of requirements and uses for this type of loan, visit this page on the USDA’s website: https://www.rd.usda.gov/programs-services/single-family-housing-guaranteed-loan-program.
Single Family Housing Direct Home Loans
The Section 502 Direct Loan Program provides payment assistance to low- to very-low- income applicants. This payment assistance can make your interest rates as low as 1%.
Per the USDA, this program is intended for people who lack “decent, safe and sanitary housing” and are unable to secure loans “from other resources on terms and conditions that can reasonably be expected to meet.” There are specific requirements for properties financed with these loans, such as the fact that they must typically be 2,000 square feet or less. Applicants can apply for this program through their local Rural Development office.
For more detailed information about this program, visit this page on the USDA’s website: https://www.rd.usda.gov/programs-services/single-family-housing-direct-home-loans.
The takeaway: USDA loan programs are a great option for lower-income borrowers who want to avoid things like down payments and high interest rates. You don’t have to have a job in agriculture to qualify. Before applying for one, make sure the property you want is in an eligible area and you meet the respective program’s requirements. For more information, consult the USDA website or a USDA-approved lender.
This article is one in a series about different types of home loans. For the next article in the series, click here.
Disclaimer: These articles are intended for general informational purposes only and do not substitute the advice of qualified mortgage professionals. Please always consult your mortgage broker or loan officer when it comes to making decisions.