When it comes to buying a home in rural America, many potential homeowners face affordability challenges, particularly those in the lower-income bracket. While conventional mortgages often require large down payments and substantial income, the United States Department of Agriculture (USDA) offers an alternative: USDA loans.
These government-backed mortgages are designed to help low- to moderate-income families unlock homeownership in rural areas.
This article explores the ins and outs of USDA loans, including what they are, how they work, how to qualify, and how they compare to other government-backed loan programs.
A USDA loan is a type of mortgage available through the USDA Rural Development Guaranteed Housing Loan Program. These loans are designed to promote homeownership in eligible rural areas.
Specifically, the program provides affordable financing options for low- to moderate-income buyers to purchase, renovate, or build homes in rural parts.
Make your dream home a reality with the right mortgage.
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Backed by the USDA, reducing the lender’s risk
– Lower thanks to government backing
– Typically fixed rates
Required, though lower than conventional loans
– USDA guaranteed loans: No more than 115% of the median household income for your area
– USDA direct loans: No more than 80% of the median household income for your area
– USDA guaranteed loans: 30-year terms
– USDA direct loans: Standard is 33 years, though up to 38 years may be allowed when the household’s income is ≤ 60% of the area median
| Loan Type | Definition | Purpose |
| USDA Guaranteed Loans | Offered by approved mortgage lenders and backed by the USDA. | To help moderate-income home buyers purchase a primary residence. |
| USDA Direct Loans | Issued directly by the USDA. | To help low- & very low-income borrowers purchase a home in a rural area. |
| USDA Construction Loans | Offers home improvement loans & grants to cover renovations. | To help low-income homeowners repair or improve their properties. |
To qualify for a USDA loan, applicants must meet specific eligibility requirements:
There are costs associated with USDA guaranteed loans:
If you’re considering a USDA loan, be sure to weigh its advantages and drawbacks to help you decide whether this rural-friendly mortgage option fits your financial goals:
Pros:
Cons:
Other government-backed loan options are available to home buyers, like FHA and VA loans. Here’s how they compare to USDA guaranteed loans:
USDA Loans
FHA Loans
VA Loans
0%
3.5%
0%
Lower than FHA loans
Higher than USDA loans
None
640 recommended
580+
Varies by lender
– Primary residence only
– Must be located in eligible rural area
– Primary residence only
– No location restrictions
– Primary residence only
– No location restrictions
Low- to moderate-income rural buyers
First-time buyers, those with lower credit
Veterans, active-duty military
The most significant perk of this program is the zero down payment requirement, eliminating the need for a large upfront cash payment.
Income limits for USDA guaranteed loans vary by location and household size. That said, annual income typically cannot exceed 115% of the median income for the area.
Properties must be located in designated rural areas as defined by the USDA. However, many eligible areas are suburban communities on the outskirts of cities, not just remote locations.
No, USDA guaranteed loans are available to any qualified borrower who meets the income and property eligibility requirements, regardless of their past homeownership history.
USDA loans involve two fees: an upfront fee of 1% of the loan amount, and an annual fee of 0.35% of the outstanding loan balance.
Yes, USDA loans can be refinanced to help homeowners take advantage of lower rates or access home equity.
No, you typically can’t refinance a non-USDA loan into a USDA loan. USDA refinance options are generally reserved for existing USDA loan holders.
USDA guaranteed loans are originated and funded by lenders and backed by the USDA. They’re designed for low-to-moderate-income borrowers. On the other hand, USDA direct loans are directly funded by the USDA and are meant for very low- and low-income borrowers.
Eligible properties include existing single-family homes, condos, townhouses, and new construction, as long as they’re located in a USDA-eligible rural area and are considered a primary residence.
Our loan officers are ready and waiting to help you apply for your home loan.
USDA loans provide a unique financing option for eligible borrowers to purchase a home with no down payment, low interest rates, and lower insurance costs. If you’re looking to buy a home in a qualifying rural area and meet the income requirements, a USDA loan may be an affordable opportunity. Be sure to work with the right mortgage lender and take the time to understand the eligibility criteria before applying.
If you’re looking to buy a home in a rural part of the Pacific Northwest region, we can help. At Sammamish Mortgage, we offer various mortgage home loan programs in WA, OR, ID, CO, and CA. Visit our website to get an instant rate quote, or get in touch with us today to have your mortgage questions answered!
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