USDA: Loan Explained

by Jessica Brita-Segyde

The United States Department of Agriculture (USDA) is a government department divided into 29 agencies. The USDA is dedicated to the betterment of rural America. The agency promotes agricultural production, resource conservation, and productive land use. The USDA achieves their purpose through data collection, public policy, research, and education. Born during Abraham Lincoln’s presidency, the USDA has grown to employ over 100,000 people over the past 150 years.

Since the USDA is commonly associated with farming, the term “USDA loan” seems to imply that this branch of government makes loans exclusively for farms or ranches. Some people assume that a USDA will only loan on income-producing ventures with a large amount of acreage. While the USDA does have a branch dedicated to farm loans, the agency also offers a fantastic loan program for home buyers in rural areas – no farm required!

The Basics

The USDA loan program is unique in a few ways. As mentioned, this program is for homes in rural areas. USDA loans also offer 100% financing, meaning you can borrow up to 100% of the purchase price of your home (assuming it appraises for at least that amount). If the appraised value is higher than the purchase price, you may even be able to increase your loan amount to cover some of the closing costs. In this way, a USDA loan truly is a “zero down” mortgage.

How to Qualify

Not all lenders offer USDA loans, so ask your loan officer if this is an option before proceeding with your application. When you apply, you’ll be asked for the usual mortgage-related information, so have your income, asset, and housing history ready. Your lender will also pull your credit. The USDA loan program is a bit different from Conventional loans in that borrowers must intend to occupy the home (no investment properties allowed). The USDA does offer rural business loans under a separate set of programs.

Also, an income limit exists – Borrowers may not exceed 115% of median household income for their area. If you want to check on your eligibility, visit https://eligibility.sc.egov.usda.gov/eligibility/incomeEligibilityAction.do?pageAction=state. You’ll be asked to enter your state, county, and household details.

The subject property must be located in an eligible rural area. The USDA’s website defines rural as “any population, housing, or territory NOT in an urban area.” Census data helps to determine which areas of the United States can be considered rural; therefore, the related eligibility map is subject to change. Policymakers may also rely on data from the National Center for Education Statistics. In addition to population and education numbers, policymakers use statistics like physical characteristics of the land and the prevalence of jobs in the area to determine rural/urban boundaries. If you’d like to check whether a specific property or geographic location qualifies, start here.

Get Pre-Qualified

Do you want to purchase, build, or rehabilitate a home in a rural area? Get started at https://www.ruoff.com/loan-options/purchase/usda. The standard prequal advice applies here. You’ll be prompted with a few simple questions so the Ruoff website can pair you with the right loan application. You’ll also be asked to create an account so you can start and stop your application at your convenience. If you’d prefer to speak with a loan officer over the phone and/or in person, click here to search for someone in your area.

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