A USDA loan is special type of a zero down payment mortgage that eligible homebuyers in rural and suburban areas can get through the USDA Loan Program, which is backed by the United States Department of Agriculture (USDA).
The USDA backs a variety of loans to help low- or moderate-income people buy, repair or renovate a home in a rural area. For eligible buyers, they feature great benefits such as 100% financing with no down payment and below-market mortgage rates.
There are several types of USDA home loans: The single family direct homeownership loan, the single family guaranteed homeownership loan, the rural repair and rehabilitation loan or grant and the mutual self-help loan. This guide will help you figure out what these loans are and whether you qualify.
Though the terms and details of these loans differ, all of these USDA loans offer very low effective interest rates (some are as low as 1 percent) and don’t require a cash down payment. To qualify, you need to have a decent credit history. Not all properties qualify for USDA loans, so be sure to visit the USDA website to see if you qualify.
Single Family Direct Homeownership USDA Loan
This type of USDA loan helps low-income households buy, repair or renovate homes in rural areas. The loans are for up to 33 years for those with incomes that are above 60 percent of the average median income for the area, up to 38 years for those below that, and 30 years for those who buy a manufactured home (a mobile home or another home that was made mostly in a factory).
To qualify, your household must have an income below 80 percent of the median income for the area; be without adequate housing; be able to afford the mortgage payments, taxes and insurance for the property (though you can sometimes qualify for subsidies to help you with this part); and be unable to get credit through another lender. Plus, you must buy a home that is “modest” for the area, meaning that its market value, design and size are reasonable for the area. Visit the USDA website to learn more about the Single Family Direct Homeownership Loan program.
Single Family Guaranteed Housing USDA Loan
This loan can help moderate-income households buy a modest home (see above) in a rural area. To qualify, your income can’t exceed 115 percent of the median income for the area; you must be able to afford the mortgage payments, taxes and insurance for the property; and you must have a reasonable credit history. These loans are for 30 years, and the interest rate varies, depending on the lender. Any state housing agency can issue these loans.
These loans and grants provide money to low-income people so that they can repair or improve their home to get rid of health or safety hazards or to make the place safer or more sanitary. To get one of these loans, you must make below 50 percent of the area’s median income and be unable to obtain affordable credit elsewhere; to get one of these grants, you must be 62 years or older and be unable to repay one of these loans. You can get up to a $20,000 loan with a 20-year term at 1 percent interest, a $7,500 grant, or the combination of both for up to $27,500. Visit the USDA website to learn more about Single Family Housing Repair Loans and Grants.
Mutual Self-Help USDA Loans
This type of USDA loan helps low-income families in rural areas who are unable to buy clean, safe homes or build their own homes; these families will do much of the labor to build the homes themselves. To be eligible, families must have income that is below 80 percent of the area’s median income, be without adequate housing and be unable to get credit elsewhere. The term of the loan is for up to 38 years (could be a shorter term, depending on your income), and effective interest rates can be as low as about 1 percent. For more details, visit the USDA’s page about Mutual Self-Help Housing Technical Assistance Grants.
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