For many potential homebuyers, the USDA home loan can be a powerful pathway to homeownership. USDA loans are backed by the U.S. Department of Agriculture (USDA) and are available to qualified borrowers looking to invest in a home in a rural or suburban area.
It offers many benefits, including low-interest rates, no down payment requirements, and flexible credit guidelines. Additionally, first-time homebuyers and repeat buyers are available for USDA home loans. If you want to purchase a home and are interested in exploring the USDA home loan program, here's what you need to know.
This loan program is a tool to make home ownership more affordable for low- to moderate-income individuals in eligible rural areas. It can be used to finance an existing home or buy a new one.
What Is a USDA Home Loan?
It is a government-backed loan program that allows borrowers to finance a home with no money down. The program was created to help rural Americans buy houses, but it has expanded to include many suburban areas. Others call it the USDA Rural Development Guaranteed Housing Loan Program. The USDA Rural Development office administers the program, which is part of the U.S. Department of Agriculture.
In 2019, financial institutions lent nearly 100,000 loans under this program. The government guarantees 90% of the loan if the borrower defaults. Low-income applicants usually have to pay back the loan over 33 years.
How Does This Loan Work?
Many programs are available to help first-time and repeat homebuyers, and one is the USDA home loan. This loan allows qualified buyers to finance 100% of the purchase price of a home, making it an excellent alternative for those who may not have saved up for a traditional down payment. Some income and credit requirements must be met to qualify for this loan, but it is an excellent option for those who do. There are three main mortgage programs under USDA:
The Single Family Housing Direct Loan Program
It is designed to help low- and very-low-income families purchase safe and sanitary homes in eligible rural areas. Qualified applicants may obtain a loan for 100 percent of the house's purchase price.
Section 502 Guaranteed Rural Housing Loan
This program, sponsored by the federal government, helps first-time homebuyers who earn less than 140 percent of the median income in their state qualify for low-interest loans to cover the cost of buying a house. Applicants for these loans do not have to pay any money upfront and can buy a home at lower interest rates than they would with a traditional bank loan. Repayment for these loans is offered at 30-year fixed-term rates only. First-time homebuyers must also meet income requirements and purchase homes in eligible rural areas.
Section 504 Home Repair Program
Qualified borrowers can use this loan for home repairs, improvements, and modernization. The borrower cannot have an income higher than 50% of the local median income and cannot have received a previous loan from the program. The proceeds cannot be more than $20,000 over a 20-year repayment period.
USDA home loans are a type of mortgage loan backed by the U.S. Department of Agriculture. They are popular among first-time home buyers and those with low-to-moderate incomes, as they offer competitive interest rates and down payment requirements. Additionally, USDA home loans do not require private mortgage insurance (PMI).