USDA Rural Home Loan — What Is It?

If you are interested in owning a home in a rural area but are having trouble finding the proper financing you many be interested in hearing more about what a USDA Rural Home Loan can do for you. Because it can be difficult securing financing for a rural property due to some banks unwillingness to loan to properties with large tracts of land or property in non-suburban areas, the USDA created a loan program in 1949 called the USDA Rural Home Loan program to address these issues. USDA rural home loans cover any property that is located in a rural area or a suburban area with less than 10,000 residents. USDA rural homes loans are excellent opportunities for individuals looking to own property in a rural area, and currently have some of the lowest interest rates out of any mortgage program available.

What is a USDA Rural Home Loan?

USDA rural home loans are low-cost insured home mortgage loans backed by the United States Department of Agriculture specifically designed for middle to low income families looking to buy a house in a rural area. There are currently two types of USDA rural home loans available known as USDA Guaranteed Rural Housing Loans and USDA Direct Rural Housing Loans.

USDA Guaranteed Rural Home loans are the most common type of rural home loans and allow for higher income limits with a full 100% financing of your home purchase. All USDA Guaranteed home loans carry a 30 year term mortgage and are set at a predetermined fixed rate. USDA Guaranteed loan applicants are allowed to have an income of up to 115% of the median household income in the area, and are able to use this loan on a new home or fixing up an existing home in a rural area.

USDA Direct Rural Home Loans are less common than USDA Guaranteed Loans and are typically only eligible for low to very low income households. Low income levels are defined as being between 50-80% of the area median income levels, while very low income levels are defined as being below 50%. USDA Direct home loans are great opportunities for lower income families to buy a home and secure a mortgage with a low fixed rate.

Advantages of a USDA Rural Home Loan

USDA Rural Home Loans offer a number of advantages that conventional home loans do not. First off, USDA rural loans are much more credit flexible than conventional mortgage programs. While credit score is a factor in determining if you are eligible to qualify for a rural home loan, USDA mortgage guidelines are written in such a way that it provides the borrower the benefit of the doubt, and allows for other financial factors to be involved. USDA Rural loans also offer low monthly mortgage insurance compared to a traditional mortgage, as well as low interest rates. And one of the biggest advantages of USDA mortgages is that they require no down payment, which is unheard of in conventional mortgage programs.