Officially known as the Section 502 Single Family Housing Guaranteed Loan Program, the USDA loan is a $0 down mortgage option available to rural and suburban homebuyers in the United States. USDA loans are issued by qualified lenders and guaranteed by the U.S. Department of Agriculture (USDA).
The purpose of a USDA loan is to provide low-to-moderate income households with the opportunity to own a home in eligible rural areas. In addition, each USDA loan is against default. This guarantee allows for benefits, such as zero down payment, low rates and lenient credit requirements.
3 USDA Home Loan Programs
The USDA guarantees a mortgage issued by a participating local lender, similar to an FHA loan and VA-backed loans, allowing you to get low mortgage interest rates, even without a down payment. However, if you put little or no money down, you will have to pay a mortgage insurance premium.
Issued by the USDA, these mortgages are for low- and very low-income applicants. Income thresholds vary by region. With subsidies, interest rates can be as low as 1%.
Home Improvement Loans and Grants
These loans permit homeowners to repair or upgrade their homes. Packages can also combine a loan and a grant, providing up to $27,500 in assistance.
Advantages of USDA Loans
USDA guaranteed loans aren’t right for every buyer. But, any first-time or repeat buyer looking for homes outside of major cities should check their eligibility for the program.
- Lower down payment than conventional or FHA financing
- Lower mortgage insurance than conventional or FHA loans
- More lenient credit score requirements than for conventional loans
- Unlike VA loans, there is no military service requirement