What is a USDA Loan?

The Rural Housing Service (RHS) is an agency of the United States Department of Agriculture that promotes rural development home loans, also known as USDA home loans. These are loans that offer 100% financing to buyers or borrowers who qualify. The mortgage loans are be backed by the USDA or United States Department of Agriculture; however the USDA’s definition of rural areas is much more broadly defined. Simply put, USDA loans can only be approved if the property being purchase is situated outside the city limits and located within the USDA eligible area. The primary purpose of USDA home loan is to expand the country’s smaller communities so the requirement does not come as a surprise. 

While USDA mortgage loans were originally meant to help rural America realize the dream of home ownership, they can also come in handy for a variety of other properties. Multifamily homes, businesses and single family properties are a case in point. In addition, loans that are backed by the United States Department of Agriculture can also be used to finance certain typed of development projects.

USDA guaranteed loans are generally beneficial for moderate to low income borrowers. The loan is also seen as an attractive loan option for borrowers who plan to renovate eligible properties, purchase properties outside the city limits or buy foreclosures

USDA Guarantee Home Loans are available to qualified borrowers but the property must be located within the USDA eligible area map. To see if the property you intend to purchase qualifies for USDA financing, use the tool checker here.

There are two types of USDA home loans: (1) Direct, and (2) Guaranteed. Both have their respective qualifications and requirements. For the Direct, a borrower must go directly to the USDA Regional Service Center in their area to apply and get the loan. The Direct is geared more towards the lower income household. A lower income family is defined as household making about 80% or less of the Area Median Income (AMI).

The USDA Guarantee Home Loans, on the other hand, is for borrowers whose household income exceeds 80% of the AMI but no more than 115% of the AMI. The USDA Guaranteed Home Loans are the type of loans that private lenders offer on behalf of USDA. Both types of loans must meet the credit, income and asset requirements set forth by the Rural Housing Service.

For more information, contact our USDA Home Loan Specialists at 281-801-9023.