With the original intent of helping very low- and low-income
families buy homes in rural areas, USDA loans can now be used by
more homebuyers. USDA loans, also known as Rural Home Loans, are
not exclusive to towns with a few hundred people. Homebuyers have
used USDA loans in cities with populations as high as 25,000.
Similar to other government home financing options, USDA loans'
features help families purchase a home without breaking the
Similar to the VA loan program, Rural Home Loans are one of the
last standing home financing options to come with no money down to
qualified borrowers. Compared to conventional loans, USDA loans'
tiny down payments allow homebuyers to save thousands of dollars
instead of spending them on 20-percent down payments. USDA loan
borrowers can finance 100 percent of a home, repair a home, or
property to build a home in a rural area. Other government loan
options feature maximum prices on homes, but not USDA loans.
A way USDA loans help homebuyers save money every month is by
doing away with private mortgage insurance (PMI). The absence of
that monthly cost combined with low, fixed interest rates makes
USDA loan payments more affordable in the long run.
Despite these money-saving features, qualifying
for a USDA loan is not impossible. Applicants need not have perfect
credit. Lenders do not require explanations from applicants with
credit scores higher than 620. Also, there are no requirements for
financial reserves to get a USDA loan. Better credit scores and
ratios equate to better interest rates.
When the USDA loan program took shape in 1987, it targeted
low-income families living in rural areas that lacked banks and
lenders. Now, it has expanded to include middle-income families in
slightly more populated areas. For a direct single-family USDA
loan, applicants' income can be as high as 80 percent of the area
The program is available to first-time and repeat homebuyers, but
it is a requirement that families currently occupy housing that is
inadequate for the family's size. Furthermore, the USDA determines
if the house being purchased is oversized, in which case the
homebuyer must find a reasonably-sized home. More importantly, the
family must be able to make mortgage, tax, and insurance