The USDA home loan, also known as the USDA Rural Development program, is designed to help low- and moderate-income buyers purchase a home in a qualifying rural area. A USDA loan can be used to build, improve, or renovate a primary home with several advantages not offered by other mortgage programs.
Benefits of a USDA Loan
Getting a USDA loan is similar to getting an FHA loan as both loans are government-guaranteed. While the USDA sponsors the program, a local USDA-approved lender handles the transaction. Unlike an FHA loan, however, a USDA loan is available with 0% down. The only other mortgage program available with no down payment is the VA loan which is only available with qualifying military service.
In addition to 100% financing, a USDA guaranteed loan offers more lenient credit requirements than a conventional loan and lower mortgage insurance fees. You are not required to be a first-time buyer to qualify for a USDA mortgage, but there are income limits for this loan program. You must have an income of 115% or less of the median income in your region. If you have enough savings to provide a 20% down payment on a loan, you are also barred from this loan program as it’s designed for buyers who can’t qualify for an affordable conventional loan.
Does Any Home Qualify?
The USDA loan program is one of the most under-utilized mortgage programs due to a common misconception on the program’s definition of “rural.” About 97% of land in the United States is eligible for USDA financing, representing about one-third of the US population in rural as well as suburban settings. Cities with a population of less than 20,000 usually qualify for USDA financing but metropolitan areas are generally excluded.
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