The United States Department of Agriculture offers mortgage loans to help people buy homes in rural areas. It provides 100 percent financing, so a down payment is not required. The federal government directly supplies the funding for some USDA loans. Others are issued by local banks and insured by the government.
USDA Loan Question & Answer
Q. What types of property can I buy with a USDA loan?
A. You may use the loan to purchase a single-family home, a condominium unit or residential land. If you buy land, you must use it to build a home. The government will not approve the loan if you pay more than a property's appraised value. USDA loans may also be utilized for major home repairs and renovations.
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Q. Can I qualify for a USDA loan with 100 percent financing?
A. If you live in a rural area and have a relatively low level of income, you may be eligible for this type of loan. Specific income guidelines vary depending upon the local area. You may still qualify if your income is slightly higher than the regional average. Applicants must demonstrate an ability to make mortgage payments and pay local taxes. Please visit USDA's Income Eligibility Website to determine if you are under the income requirements.
Q. Will I be disqualified if I have a low credit score for USDA?
A. People with low credit scores may not qualify. The USDA is more lenient than most commercial mortgage lenders, but it certainly does take credit histories into consideration. A credit score of at least 620 will prove beneficial when you apply for this type of loan.
Q. Do I need to live in a remote rural area to obtain a USDA loan?
A. No. The government also offers these loans to residents of many small towns and some rural areas near cities. This type of financing is sometimes available in small cities as well, especially those with fewer than 20,000 residents. The official USDA loan guidelines clearly identify the eligible portions of each state. Please visit USDA's Property Eligibility Website to determine if a particular property is in an eligible area.
Q. What type of mortgage can I expect to receive from the USDA?
A. The loans typically have terms of 30 to 38 years and fixed interest rates. Terms of 33 years or longer are reserved for people with very little income. Regardless of the applicant's income level, the government limits USDA loans on manufactured homes to 30 years.
Q. How can I increase the likelihood that the USDA will approve my application?
A. Thoroughly research the USDA loan guidelines before applying. PS I can help you with this :) I am a USDA loan professional. Look for real estate that you can easily afford to buy and maintain. Avoid moving to a significantly wealthier area. If you recently went bankrupt or lost a home to foreclosure, do not think you can not get a loan. USDA allows a borrower to purchase after a bankruptcy or foreclosure if the borrower can document that there was loss of income or that there was a medical hardship.
Although the USDA loan program is not for everyone, it offers a desirable alternative for the rural home buyer who cannot afford to make a down payment.
*Pete Metz has been in the loan industry for 10 years. His office is located in Redding, California. He helps hundreds of families in California to obtain a mortgage every year. His bank has been ranked #1 for government loans in the Scottman’s Guide for 2009 , 2010, 2011, and 2012
