97% of the land in the United States qualifies as ‘rural’. Thanks to USDA loans, you have an affordable option to fulfil your dream of peaceful country living.
The US Department of Agriculture offers USDA loans to make rural homeownership affordable for low to moderate-income buyers. These loans come with low interest rates and 0 down payment.
If you decide that the USDA loan is for you, you should get pre-approved to understand your total costs. Why wait? Start your home buying journey today!
Get pre-Approved For a Mortgage 🏡
Select Your Loan Type
-
New Home Purchase
-
Mortgage Refinance
-
Cash-out Refinance
What Is a USDA Loan?
A USDA loan is a mortgage available to low-income borrowers who want to buy a house in rural areas of the US. It allows you up to 100% financing on a new home. USDA loans typically come as 30-year fixed rate mortgages.
The USDA strictly limits the loan to properties within the eligible rural areas. A town is only classified as ‘rural’ if it has fewer than 5,000 people. The USDA periodically assesses these classifications.
What Are the Requirements?
The eligibility for a USDA loan is as follows:
- Location: The property must be located in a USDA-designated rural area. You can use the USDA loan’s eligibility map to check if your home qualifies.
- Occupancy: The property you purchase must be your primary residence. The USDA loan cannot be used to buy an additional home or investment property.
- Income: Your household income should be less than or equal to 115% of your area’s median income.
- Credit Score: Lenders generally require a credit score of 640 or higher.
- Debt-to-Income Ratio: You must have a debt-to-income ratio of 41% or less.
- Employment: You must have a stable income and employment history.
- Citizenship: USDA loans are available to US residents, non-citizen nationals, as well as permanent resident aliens.
Types of USDA Loans
The US Department of Agriculture offers 3 types of loan programs for people who wish to purchase a rural home:
- Direct Loans: The USDA directly issues these loans. They are offered at subsidized interest rates, and have no mortgage insurance.
- Guaranteed Loans: These are loans issued by private mortgage lenders and backed by the USDA. They require an upfront guarantee fee and an annual fee.
- Repair Loans and Grants: You can use these loans to make necessary repairs to an existing home.
How Much Do You Need to Pay for a USDA Loan?
There are 2 fees applicable for a USDA home loan:
- Guarantee Fee: This upfront fee is 1% of the loan amount. It is typically paid at closing.
- Annual Fee: This fee is 0.35% of the loan amount. It is part of your monthly mortgage payment.
Pros and Cons of USDA Loans
Carefully consider the advantages and disadvantages of a USDA loan before you apply for one:
✅ Pros
- Affordable Mortgage Rates: USDA loans offer some of the lowest interest rates on the market.
- No Down Payment: They demand no down payment, while other loan types require a minimum of 3%.
- Full Funding: You can finance 100% of your home’s purchase price with a USDA loan.
- No Private Mortgage Insurance: USDA loans do not require private mortgage insurance. This can significantly reduce your monthly mortgage payments.
- Inclusivity: USDA loans are not restricted to first-time home buyers.
❌ Cons
- Geographic Restrictions: USDA loans are only available in designated rural areas.
- Income Limits: You can only avail this loan if you fall within a certain income bracket. This is because the USDA aims to support low-income families.
- Limited Funding: Since these loans operate within an annual budget, there is a chance your loan application may not be accepted.
- Additional Fees: You may have to pay guarantee fees, annual fees, and other costs in addition to your overall loan expenses.
- Occupancy: You can only take out a USDA loan for your primary residence.
USDA Loan vs. Conventional Loan
| USDA Loan | Conventional Loan |
| Backed by the federal government. | Not part of a government program. |
| Only allows property purchase in designated rural areas. | More flexibility in terms of property location. |
| Interest rates are relatively low. | Interest rates depend on market conditions and borrower qualifications. |
| Requires 0 down payment. | Requires 3% to 20% down payment. |
| Strict income limits based on the size and location of your home. | No income limits. But lenders typically consider debt-to-income ratio and employment stability. |
Should You Get a USDA Loan?
USDA loans make rural homeownership possible for low-income applicants. They come with low interest rates and 0 down payment.
However, they also have income and geographic restrictions. So, make sure to assess all the eligibility requirements before you apply for a USDA loan.
Find Your New Home With Houzeo
With thousands of property listings, Houzeo is one of the biggest property listing sites in the US. You can find condos, townhouses, co-ops, and other types of homes for sale on Houzeo.
» NEED MORE CLARITY? Read these exclusive Houzeo reviews and learn why the platform is the best in America’s competitive housing market.
Frequently Asked Questions
Do you need to be a farmer to qualify for a USDA loan?
No, you do not need to be engaged in active farming to be eligible for a USDA loan. But the loan can be used to purchase a farm in a designated rural area.
Can I get a USDA loan after bankruptcy?
Yes. But you will only be eligible for a USDA loan three years after a chapter 7 bankruptcy discharge.
Do USDA home loans have PMI?
No, USDA loans do not require private mortgage insurance (PMI). However, they have guarantee and annual fees that make up a small fraction of the loan amount.
