USDA loans (agricultural / rural development home loans) are zero-down-payment mortgages for rural and suburban homebuyers. They’re mainly for borrowers who aren’t wealthy and can’t get a traditional mortgage. Perhaps you feel more at home surrounded by pastures than pavement. If so, buying a home might be well within reach, thanks to the U.S. Department of Agriculture mortgage program. In fact, the USDA might have one of the government’s least-known mortgage assistance programs.  USDA loans are issued through the USDA loan program, also known as the USDA Rural Development Guaranteed Housing Loan Program, by the United States Department of Agriculture.

The program is designed to “improve the economy and quality of life in rural America.” It offers low interest rates and no down payments, and you may be surprised to find just how accessible it is.

Right now USDA mortgage rates are at a record low

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How USDA loan programs work

There are three 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. If you put little or no money down, you will have to pay a mortgage insurance premium, though.

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 or outright financial awards permit homeowners to repair or upgrade their homes. Packages can also combine a loan and a grant, providing up to $27,500 in assistance.

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Qualifying for a USDA-backed mortgage guarantee

Income limits to qualify for a home loan guarantee vary by location and depend on household size. To find the loan guarantee income limit for the county where you live, consult this USDA map and table. USDA guaranteed home loans can fund only owner-occupied primary residences. Other eligibility requirements include:

Dependable income, typically for a minimum of 24 months

An acceptable credit history, with no accounts converted to collections within the last 12 months, among other criteria. If you can prove that your credit was affected by circumstances that were temporary or outside of your control, including a medical emergency, you may still qualify.

U.S. citizenship (or permanent residency)

A monthly payment — including principal, interest, insurance and taxes — that’s 29% or less of your monthly income. Other monthly debt payments you make cannot exceed 41% of your income. However, the USDA will consider higher debt ratios if you have a credit score above 680.

Credit Scores a factor

Applicants with credit scores of 640 or higher receive streamlined processing. Below that, you must meet more stringent underwriting standards. You can also qualify with a nontraditional credit history.

Eligible home locations

Metropolitan areas are generally excluded from USDA programs, but pockets of opportunity can exist in suburbs. Rural locations are always eligible.

How USDA-issued home loans work

Going one step further in helping prospective homebuyers, the USDA issues mortgages to applicants deemed to have the greatest need. That means an individual or family that:

  • Is without “decent, safe and sanitary housing”
  • Is unable to secure a home loan from traditional sources
  • Has an adjusted income at or below the low-income limit for the area where they live

The USDA usually issues direct loans for homes of 2,000 square feet or less, with a market value below the area loan limit. Again, that’s a moving target depending on where you live. Home loans can be as high as $500,000 or more in pricey real estate markets like California and Hawaii, and as low as just over $100,000 in parts of rural America

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