You don’t have to be a farmer to reap the benefits of a USDA home loan. Whether you prefer the countryside to city life, have the ability to work from anywhere, or are interested in retiring to greener pastures, a USDA loan could help you afford the home of your dreams.
How Do USDA Home Loans Work?
The United States Department of Agriculture (USDA) created the home loan program to enable low- to medium-income households to afford homes in rural areas and help stimulate the economy and quality of life in rural and suburban communities across the country.
You may be surprised to hear that approximately 97 percent of land in the United States is eligible for rural development loans. USDA loans are similar to FHA loans in terms of qualification, but are less expensive, plus they come with advantages often unheard of in cities, such as:
- 100% financing with no monthly mortgage premium
- $0 down payments
- Competitive interest rates
- Low monthly mortgage insurance premiums
- Flexible credit requirements
Here’s a bit more information on the three types of home loans offered by the USDA:
- USDA guaranteed loans are issued by private lenders, but backed by the USDA, which enables lenders to take on greater risk and offer competitive rates and terms. Those who qualify for a USDA guaranteed loan have the option of putting $0 down if they purchase mortgage insurance.
- USDA direct loans are geared toward low-income and very low-income applicants, which are people who need access to safe and sanitary housing and are unable to obtain financing elsewhere. These loans are issued directly by the USDA and payment assistance is provided in the form of a subsidy. Income limits for USDA direct loans vary by region, but they can include interest rates as low as one percent with subsidies.
- Home improvement loans and grants provide financial assistance of up to $27,500 to homeowners for repairing or upgrading their eligible rural homes.
What Are the USDA Home Loan Requirements?
Because USDA home loans are geared toward lower-income applicants, there are income limits that vary by location and household size. To see if you qualify in your county, check out the USDA Rural Development table. And if you’re wondering which areas of the country are eligible, the USDA defines “rural” as any place with a population under 35,000.
Keep in mind that the USDA includes the total annual income of every adult member of the household, regardless of whether their name is on the loan. That annual income will be adjusted to take into account deductions for things like child care, medical expenses, and more.
Other USDA home loan requirements include:
- The house must be your primary residence.
- You must be a U.S. citizen or have permanent residency.
- You must have dependable income for a minimum of 24 months.
- You should have decent credit; applicants with scores of 640 or higher will have streamlined processing, meaning lenders can use the USDA’s Guaranteed Underwriting System (GUS), rather than manual underwriting.
- Your monthly payments should be 29 percent or less of your monthly income.
To find out more about eligibility, visit the USDA Income and Property Eligibility Site.
How Do I Apply?
If you’re interested in applying for a direct loan or home improvement loan or grant, you should contact your state’s USDA office. The process of applying for USDA guaranteed home loans varies depending on the situation, but the typical steps are as follows:
- Get prequalified with a participating lender like radius financial group.
- Provide all necessary documents and get pre-approved.
- Locate a USDA-approved home in a designated rural area.
- Sign a purchase agreement and request a USDA appraisal.
- Wait for everything to be processed and close on your new home.
Get Started with radius financial group: Learn More About USDA Home Loans
If you’re interested in finding out more about USDA home loans, reach out to a radius financial group loan officer near you. Our loan officers will walk you through the process and help you realize your dream of country living.