Starting in 1991, the U.S. Department of Agriculture (USDA) began offering rural development loans to home buyers interested in living in rural and suburban areas. For home buyers considering moving to an area like these, a USDA loan might be worth looking into instead of considering a conventional mortgage. Here is what all buyers interested in using a USDA loan should know before diving in.
The Purpose of USDA Loans
USDA loans have several major purposes for their existence, but their primary focus is giving low- and medium-income people an opportunity to own their on home by incentivizing them to move to select rural and suburban areas in order to boost the economies of those area. USDA loans allow buyers to purchase a home without a down payment, and the leans can be up to $500,000 depending on the area the buyer is interested in purchasing a home in. However, most areas are limited to $294,515. USDA loans are intended to be used either to purchase a home or to refurbish a home that the applicant already owns.
Types of USDA Loans
Like some other government-sponsored loans such as VA loans, USDA loans have several different types. The two most common types are Rural Repair and Rehabilitation Grants and the Mutual Self-Help Loan.
Rural Repair and Rehabilitation Grant is for homeowners who want to repair their home or get rid of safety hazards that may exist on the property. Applicants for this grant must be below 50% of the area’s median income and be unable to obtain credit elsewhere. Applicants must also be at least 62 years of age to qualify.
Mutual Self-Help loans are for organizations who wish to help people who don’t already have adequate housing and also can’t get credit from another source. For organizations using this loan, the interest rate is only 1%. People interested in this sort of loan must go through an organization willing to sponsor them.
Because there are different types of USDA loans, there is no one set of requirements applicants must meet that will apply to all of them. So instead, here are some of the general requirements that stay the same regardless of type:
- All applicants must be United States citizens or have permanent residence within the United States.
- All applicants must be able to afford the monthly mortgage payments on the property.
- All applicants must have some source of dependable income.
- All applicants must not have been disallowed from participating in federal programs.
- All applicants must have their credit history approved.
- The selected property must meet the program’s criteria.
Not every property located in a rural or suburban area is eligible for a USDA loan. Because USDA loans are focused on rural and suburban areas, urban and metropolitan areas will never be eligible for this type of loan. Similarly, not all suburban areas are eligible for USDA loans, so all buyers interested in using this type of loan to purchase a suburban home must check in advance to make sure it’s in a preapproved location. Anyone unsure of which locations are eligible for a USDA loan can use this map located on the USDA’s website.
Many Americans who may want to buy a home in Louisville or elsewhere might be able to benefit greatly from using a USDA loan. From the $0 down payment to the wide selection of eligible properties, a USDA loan can be the right choice for many people looking to purchase a home in a rural or suburban area.