USDA Loans: Not Only For Farms

Posted on: 4 October 2016

For many people, owning a home is just a dream. Perhaps they have little to no down payment available and feel that home ownership is not in their future. For these people, the U.S. Department of Agriculture (USDA) offers a path to owing a home that could mean the realization of their dreams. If you are irritated with throwing away your money on rent instead of building valuable equity in a home of your own, read on to learn more about this government-sponsored program for guaranteeing mortgages.

Areas that are eligible for loans.

While most people would assume that a loan sponsored by the Department of Agriculture would involve the purchase of a farm, that is simply not correct. Many areas that lie just outside of major cities and expansive areas of every state have property that qualifies. The USDA provides interested applicants with an easy to use map that can be zoomed in to an exact address. Simply check a specific address or even an entire community with one glance. Suburban areas outside of large cities, small towns and cities, and rural areas are all included in the availability map. Your idea of what is considered "rural" may be challenged upon viewing this map.

Two types of loans.

The USDA offers two different loan programs with different income and down payment criteria.

1. Direct loans: The USDA Section 502 Direct Loan Program is perfect for those who cannot come up with the money for a down payment, which is a major sticking point for many would-be homeowners. This program requires a 0% down payment; the only other mortgage loan available for a 0% down payment is the Veterans Administration loan. This program is aimed at those with very low incomes, and your income must be below the income shown in the chart, which varies by county and state.

2. Guaranteed Loans: The Guaranteed Loan Program may be a better choice for you if your income is too high to qualify for the Section 502 program, since higher incomes are allowed. Unfortunately, the option for a 0% down payment doesn't exist with this type of loan. The good news is that the down payment requirement is still very low.

More points to consider.

The word "guarantee" in this regard should not be misunderstood. These loans are guaranteed by the federal government against loss by the lender. In other words, if a homeowner fails to pay the loan as agreed, the federal government will repay the loan for them. This means that the lender has a lot less to lose for extending these loans, which makes it far easier for most people to qualify for the loans in the first place.

Speak with your real estate agent or your mortgage lender for more information about the USDA loan program and begin making your dreams come true.