USDA loans are home loans provided by the Department of Agriculture. There are three main types of USDA mortgages.
Guarantee single-family home
These loans are intended for low-income (less than 115% of area median income) local residents. Borrowers do not need to make a down payment to receive a USDA loan. However, the home must serve as the buyer's primary residence.
These loans are unique in that they are made through a private lender (rather than USDA itself) and are guaranteed by USDA. The best USDA lenders are transparent about the process and costs associated with a mortgage loan.
To qualify for a guaranteed USDA mortgage for a single-family home, buyers must have reasonable credit. Interest rates vary by lender, and loans are only available from lenders approved to issue loans through the USDA program. If funds are limited, first-time homebuyers are given priority.
Detached house direct
These loans are designed to help low-income and very low-income borrowers obtain affordable housing in rural areas. Borrowers don't have to make a down payment, but because these loans are issued directly by the USDA (not a private lender), eligibility standards are a little more stringent. Requirements include:
Does not have safe or sanitary housing, cannot obtain loans from other sources, is not suspended from participating in federal programs
There are several requirements to purchase a home with a USDA Single Home Direct Loan, including:
Less than 2,000 square feet No pool Must be the primary residence Must be no more than a certain market value (varies by region)
USDA's standard mortgage repayment schedule is up to 33 years (unless the payments become too high). Direct loans can be repaid over up to 38 years for very low-income borrowers. Interest rates are based on current market rates, but can be as low as 1%, subject to change with repayment assistance. As of July 1, 2023, the current interest rate for low and very low income individuals is 4.125%.
These loans are issued directly by USDA (not private lenders) through the Section 502 Direct Loan Program.
Repair of detached house
These loans allow individuals and families with very low incomes to repair or improve their homes. Low-income seniors can also receive grants to eliminate health and safety risks in their homes. The requirements to qualify for a USDA single-family home repair loan are:
You cannot get financing elsewhere Your household income is less than 50% of the area median income The funds must be used for repairs or improvements to the home The home must be currently occupied by the borrower
Borrowers can take advantage of USDA home loans with 20-year repayments for up to $40,000 in repairs. The interest rate on the loan is fixed at 1%. Applications are only accepted at local rural development offices.
These loans are available through the Section 504 Home Repair Program.
