USDA loans are home loans the Department of Agriculture facilitates. There are three primary types of USDA mortgage loans.
Single family housing guaranteed
These loans are intended for rural residents with low incomes (below 115% of the area median income). Borrowers are not required to make a down payment to get a USDA loan. However, the home must act as the buyers’ primary residence.
These loans are unique because they’re made through private lenders (not the USDA itself). Then, they’re guaranteed by the USDA. The best USDA lenders are transparent about the process and any costs associated with your home loan.
To qualify for a single family housing guaranteed USDA home loan, buyers must have reasonable credit. Rates vary from one lender to another, and loans are available only from lenders approved to issue loans through the USDA program. If funds are limited, first-time homebuyers are given priority.
Single family housing direct
These loans are meant to help low- and very low-income borrowers obtain an affordable home in a rural area. Borrowers do not need to make a down payment, but because these loans are issued directly by the USDA (not a private lender), the criteria to qualify is a bit more strict. Requirements include:
- Not having safe or sanitary housing
- Unable to obtain a loan from other sources
- Not suspended from participation in federal programs
There are a few requirements for home purchased with a single housing direct USDA loan, including:
- 2,000 square feet or less
- No pool
- Must be a primary residence
- Must not exceed a certain market value (varies by area)
The standard USDA home loan repayment timeline is up to 33 years (unless this would make payments too high). Direct loans can be repaid over as long as 38 years for very low-income borrowers. The interest rate is based on current market rates, but could be as low as 1%.
These loans are issued directly by the USDA (not a private lender) through the Section 502 Direct Loan Program.
Single family housing repair
These loans empower individuals and families with very low incomes to repair or improve their homes. Seniors with low incomes can also obtain grants to eliminate health and safety risks within their homes. Requirements to qualify for a USDA single family housing repair loan include:
- Cannot obtain credit elsewhere
- Family income below 50% of the area median income
- Funds must be used to repair or improve a home
- The home must be currently occupied by the borrower
Borrowers can obtain a USDA home loan for repairs up to $20,000 to be repaid over as long as 20 years. The interest rate on the loan is fixed at 1%. Applications are accepted at local rural development offices only.
These loans are made available through the Section 504 Home Repair Program.