Loan Options — What’s a USDA Loan?

The United States Department of Agriculture (USDA) is best known for its role in nutrition and food safety, which is why it surprises many to learn of the agency’s involvement in rural development. In fact, the USDA has its very own mortgage assistance program, which is geared to rural and suburban homeowners. Here’s a rundown on the USDA loan and qualifications for eligibility.

The USDA Loan

The USDA home loan is a zero down payment mortgage with low interest rates. The program, known as the USDA Rural Development Guaranteed Housing Loan Program, was created to “improve the economy and quality of life in rural America,” and it has three separate products:

  • Loan guarantees — Similar to FHA or VA loans, a USDA loan is guaranteed. That means participating lenders have less stringent rules and regulations, as well as lower interest rates.
  • Direct loans — These are intended for eligible applicants with low or very low income, and thresholds vary from one region to the next.
  • Home improvement loans and grants — These loans and grants can be used for home repairs and upgrades.

To qualify for a USDA loan, applicants must live in the home as their primary residence. These homes must be located in a qualifying rural or suburban area, which can be checked on the USDA’s eligibility map. A USDA loan was designed for families who would otherwise struggle to own, so adjusted gross income can’t be greater than 115% of the area’s median income. Applicants must also show stable income, a debt-to-income ratio of 50% or less, and a credit score of 640. In some cases, it’s possible to qualify with a credit score under that number, but you’ll need to speak to a lender.

The Takeaway

While USDA loans are designed for rural areas, you don’t have to be a farmer to qualify. These loans are approved based on location and income, and they may be worth investigating if you think you may be eligible. The Cushing Team of Guild Mortgage here in Reno is happy to answer your questions — contact us today to learn more about your options.

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