If you’re not familiar with the USDA Loan program, you aren’t the only one. This is a special type of mortgage program that’s more oriented for those who are looking for a life surrounded by country landscapes. That’s because the USDA is a mortgage program provided by the U.S. Department of Agriculture with the aim of improving the economy and quality of life in rural America.
This program first began in 2014 when the USDA invested nearly $20 billion into the program as part of what it called Rural Development. This mortgage assistance has so far helped over 140,000 families buy and improve their homes with friendly terms like no down payments and low interest rates.
How the USDA Home Loan Programs Work
There are three different types of programs offered by the USDA:
- Loan guarantees – The USDA works with a participating local lender to allow eligible applicants to get a low interest rate with zero down payment. However, for those who apply for the little to no money down there will be a mortgage insurance premium.
- Direct loans – The USDA works with you directly if you are categorized as a low or very low income family. With a direct loan, your interest rates may be as low as 1 percent.
- Home improvement loans and grants – These are USDA home mortgage loans, and in some cases outright financial grants, are awarded to homeowners wanting to repair or upgrade their rural home and property. Some packages may combine the two and are eligible for up to $27,500 in total financial assistance.
How to Qualify for a USDA Loan Program
The USDA guaranteed home loan programs are designed to fund only the primary residence of the homeowner. Other qualification requirements include:
- Proof of permanent residency or US citizenship
- Ability to make a monthly payment that is 29 percent or less than your monthly income. Ideal outside dept payments shouldn’t exceed 41 percent of your income, but exceptions are allowed if you have a good credit score (above 660).
- Proof of dependable income for a minimum of at least 24 months.
- An approved credit history. This means ideal applicants won’t have accounts less than a year old that were transferred over to collections. However, the USDA does allow for exceptions in scenarios such as medical or family emergencies.
The qualification process is highly linked to your credit score. For instance, applicants with credit scores over 620 will receive streamlined processing, while those below 580 will consult with more stringent standards. If you lack a sufficient background for a fair credit score, you can also qualify as a ‘nontraditional’ credit applicant and use such references like your rental and utility payment histories for proof of payment reliability.
How the USDA-issued Home Loans Work
The USDA Loan Program has really oriented itself around providing mortgages to applicants found to be in the greatest need. This means they are looking for individuals and families that:
- Lack decent, safe, and sanitary housing
- Are unable to obtain a home loan through the traditional channels
- Have an adjusted income at or below the low-income limit for the region they live in (see this map and data table for reference)
A USDA Loan Program by way of the direct loans are generally issued for buildings of 1800 square feet or less and a low market value for the area.
Eligible Home Locations
Most all metropolitan areas are excluded from this USDA loan program. However, there are a few select opportunities in certain suburban areas. Properties located within rural locations are always eligible. Uncertain where you fall at? Check out this USDA map (select the “Single Family Housing” option under the tap “Property Eligibility”) to help you determine whether or nor your exact address is eligible for the USDA loan program
Taking the Next Big Step
Once you’ve determined that you live in an area eligible for a USDA home loan, the next step is to speak with a participating lender about applying for a USDA-backed loan. If you are interested, and meet the income requirements necessary for a USDA direct mortgage or home improvement loan or grant, then your next big step will be to contact your local USDA office.
While a program sponsored by the US Department of Agriculture might seem as it’s supposed to be targeting farmers, ranchers, and other such agriculture-oriented workers, this loan program has nothing to do about occupation. In fact, while income does play a hand, your line of work will have no bearing on the qualification process. Instead, eligibility is purely a matter of your home’s location and family income. The idea of this program is to enhance the life of rural America so that everyone, not just our farmers and ranchers, gets to enjoy their slice of the greater American country pie.