USDA Rural Development Loans

USDA Loan Requirements

Who Qualifies for a USDA Loan?

The USDA home loan targets Americans from rural areas with lower annual incomes, so there is a household income limit, and only those who have a family income lower than that amount can qualify for a USDA loan. Applicants must be U.S. citizens or meet noncitizen requirements, and first time home buyers are not excluded from the deal. The property must also be in a USDA eligible area. Your realtor or lender should be able to help you determine if a home qualifies for a USDA loan.

Benefits of USDA Rural Development Mortgages

The most obvious benefit of USDA loans is that there is no down payment requirement. Since these homes are expected to be in more rural areas, there is also some more flexibility with the property condition than with other government-backed loans. Another benefit is the competitive interest rate and lower monthly mortgage insurance payments. It is also possible for the loan value to exceed the property value of the home by 1%, which can be used to help with closing or repair costs if needed.

Disadvantages of USDA Rural Development Mortgages

The USDA loan is meant to provide people with basic housing needs. This means it is only meant for primary residences and excludes investment properties, vacation homes, or any income-generating portion of a property (such as extra units in a duplex or quadplex). There is a limit to where houses can be purchased and who can purchase them. The income of a family cannot exceed a certain amount. As for location, the property must be in an area deemed rural by the USDA. The boundaries of qualifying areas can be found on the USDA website. Houses bought under the loan will likely be 2,000 square feet or less, and in-ground swimming pools are not permitted.

Applying for a USDA Mortgage Loan

To start the loan application process, first choose a lender that is USDA approved and contact them. The lender will review your documents and determine if you are eligible. These documents will include income information such as income and identity documentation. If you are determined to be eligible, the next step is to find a new home approved by the USDA and get an offer accepted. Then, the lender will get your loan underwritten and approved so you can close on your new home!