USDA/Rural Development Loans
Did you know, half the US Population lives in a designated rural area? Home loans guaranteed by the United States Department of Agriculture (USDA) provide affordable financing options for properties located in designated small towns, suburbs and exurbs. This program helps eligible low- to moderate-income families achieve homeownership by offering a no down payment option. The USDA loan program is available throughout the country, not just in states known for their agricultural production.
USDA Loan Highlights
With flexible requirements, USDA loans feature:
- 100% financing + required guarantee fee = 102% of the appraised value
- Low FICO score requirements
- Low interest rates
- Low closing costs
- Gift funds can be used for closing costs
- 30-year, fixed-rate mortgage
USDA Loan Eligibility
Eligibility is based on the property size, location and condition along with income and other qualifying factors. Some of these requirements include:
- Property must be located in a USDA designated rural area
- Maximum loan limits vary based on location
- Household members can have a total income of up to 115% of the medial income for the area
- Household must be able to afford the mortgage payment, including property taxes, homeowners insurance and the annual guarantee fee payable on a monthly basis
The USDA mortgage program is sometimes referred to as a “Section 502” loan or a “Rural Housing” loan. However, the definition of “rural” is broader than you may think.
Some homebuyers may bypass the USDA loan program thinking that “rural” means they have to buy a farm. However, that’s not the case. The USDA defines rural areas as “any areas other than a city or town that has a population of greater than 50,000 inhabitants” and “the urbanized area contiguous and adjacent to such a city or town.” So, areas that you might think are suburban or part of town are often classified as “rural.”
The USDA loan program doesn’t have any minimum land requirement, either, so you don’t have to buy a farm or even a single-family home. Townhouses and condos are allowed to be financed with USDA loans. You just need to use the property as your primary residence.
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