What is a USDA Loan?

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

Loan Guarantees

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.

Direct Loans

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
  • The only zero-down loan on the market besides the VA mortgage

Qualifying For A USDA Mortgage

Income limits to qualify for a home loan guarantee vary by location and depend on household size. USDA guaranteed home loans can fund only owner-occupied primary residences. Other eligibility requirements include:

  • Meet income-eligibility
  • Agree to personally occupy the dwelling as their primary residence
  • Be a U.S. Citizen, U.S. non-citizen national or Qualified Alien
  • Have the legal capacity to incur the loan obligation
  • Have not been suspended or debarred from participation in federal programs
  • Demonstrate the willingness to meet credit obligations in a timely manner
  • Purchase a property that meets all program criteria

To apply for a USDA loan, contact First Ohio Home Finance. If you’re interested in a USDA direct mortgage or home improvement loan or grant, contact your state’s USDA office.

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