USDA loans, backed by the United States Department of Agriculture, are designed to help potential homeowners purchase properties in rural areas. These loans offer the benefit of zero down payment and are specifically available to low-to-moderate-income individuals or families.
To qualify for a USDA loan, the property must be situated in an eligible rural area as determined by the USDA’s geographic criteria. Applicants must demonstrate a stable income and a credit history that reflects the ability to repay the loan, generally with a minimum credit score requirement of around 640. Income limits are also in place, which ensures that these loans are targeted towards those who genuinely need financial assistance to purchase a home.
The USDA loan consists of two primary programs: the Guaranteed Loan Program and the Direct Loan Program. The Guaranteed Loan Program is offered through approved lenders and enables more straightforward access to mortgage financing. Meanwhile, the Direct Loan Program is aimed at applicants with the greatest financial need, allowing them to directly receive loans from the USDA.
USDA loans also include additional costs in the form of a guarantee fee. For the Guaranteed Loan Program, the upfront guarantee fee is typically 1% of the loan amount, and there's an annual fee of 0.35% applied to the unpaid balance. These fees fund the program and enable borrowers to obtain such advantageous loan conditions.
Borrowers interested in pursuing a USDA loan should assess their eligibility and the property’s location through tools provided by the USDA. Consulting with lenders experienced in USDA loans can also help facilitate the process and ensure that all requirements and documentation are in order.