Mortgage 101

USDA Loans: Basics and Benefits

By Ashley Wirgau on February, 1 2021
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Ashley Wirgau

If the roar of the city has become too much and you are hoping to stretch your wings somewhere a bit more remote, a USDA loan could be the perfect fit for your financial needs. These mortgages allow low-income borrowers or those with less than stellar credit additional lending options when searching for a house. 

For buyers seeking solitude outside the urban sprawl, this type of loan might be just the ticket to the next destination.

The Basics

Originating in 2007 under the USDA Rural Development Guaranteed Housing Loan Program, this type of lending was created in order to improve homebuying opportunities in rural regions of America. The program is aimed at assisting low-income earners or borrowers with poor or minimal credit histories in achieving their dreams of homeownership or home improvement projects. With backing from the federal government, these loans allow for less-stringent qualifications than a traditional mortgage would and open the playing field to a larger population of prospective buyers.

The best news – unlike the name would suggest, borrowers, are not required to be associated with the agricultural industry in any way. The stipulations on eligibility are solely related to an individual’s total household income, household size, and the area in which they wish to purchase property. Additionally, many of these approved regions exist outside of the remote corners of rural America. There are plenty of opportunities for these loans in various suburban neighborhoods throughout the United States. With any of these properties, though, homeowners must be willing to list the property in question as their primary residence as second homes or future rental properties do not qualify.

The Benefits

A USDA home loan tends to be the best fit for those who have struggled with securing funding elsewhere. Borrowers with low credit scores (down to 640) or limited credit histories often find approval via these means. Applicants with even lower scores may be eligible, as well, but the underwriting process may take additional time and the interest rates will likely be higher. A huge benefit of a USDA loan, however, is the low to nonexistent down payment required. This brings the goal of homeownership into view for so many Americans who would otherwise be denied.

It should also be noted that the USDA favors those borrowers who are seen as having the greatest need. Specifically, applicants who are currently without adequate housing, have been unsuccessful at finding home loan approval via traditional lenders, and who have an adjusted total household income at or below the standard set for the area in which they wish to purchase property.

To determine the set income levels per region of interest, check out the USDA’s interactive map and find out if you qualify based on income. Should you wish to further confirm eligibility regarding additional factors including geographic location, take a few moments to complete the self-assessment guide offered on their website, as well.