What are USDA Loans and How Can I Get One?

USDA loans are available almost everywhere

If you are willing to forgo city living in favor of suburban living, a USDA loan might be an option for you. What is a USDA loan, you might ask? It might be a term you’ve heard of but never really paid much attention to, but it is worth looking into if you are buying a new home and want to see which types of loans are available to you. I’d never heard of a USDA loan until recently, and it turns out that there is a lot more to it than initially meets the eye. USDA loans are issued by the U.S. Department of Agriculture’s mortgage program and are offered to families and individuals that qualify throughout the country.

Traditionally, those who qualify for a USDA loan of any type are going to need to meet several requirements, including the inability to obtain a traditional mortgage, a low income level, a low credit score and/or little to no down payment. One of the biggest misconceptions surrounding the USDA loans offered by the USDA is that you have to be a first-time homebuyer to qualify for this program, but this is not the case. Additionally, being a farmer or living in the middle of the country without access to civilization is also not a requirement. Too many people overlook this particular USDA loan program because they assume that they don’t qualify living in a very suburban community in a gated community with plenty of amenities and no land. It’s not the case.

The USDA loan program has been in existence since 1991, which means it’s a well-oiled machine in addition to the U.S. government’s efforts to boost home ownership in rural communities throughout the past several decades. Helping buyers who might not be able to afford a home otherwise, the USDA loan program has helped millions of American families realize the American dream of homeownership.

What is a USDA Loan?

The answer is very simple. A USDA loan is a home loan offered to homeowners living in rural communities by the U.S. Department of Agriculture’s home loan mortgage program. Where it becomes a little more complicated is when it comes down to the details. Not everyone is eligible to receive a USDA loan, and not everyone that lives in rural communities meets income requirements and household requirements to qualify for this type of loan. However, if you know that the home in which you want to live is located in a rural community, it might pay to pay attention to this to determine whether or not you qualify for this type of home loan.

There are three types of USDA loans, each of which we will delve into and discuss. Each one has slightly different requirements for borrowers to meet, but each one is a complete home loan that makes the process of buying or building a home that much simpler for all homeowners.

Direct Loans

The first type of USDA loan is the Direct Loan. This is a loan that allows you to purchase a home if you are a very low or low-income family living in a rural community within the United States. The definition of low or very-low income is different in every area of the country based on the average cost of living, the employment rate, the economy and many other factors. What might be considered a low-income household in New York City, for instance, might be far more than the income requirements for a low-income family in Mississippi. To find out what the income requirements are for your area, you’ll want to head to the U.S. Department of Agriculture’s USDA loan income requirements homepage to search through your area.

From that point, you will then enter your household size, your income size and all the other personal information asked to determine whether or not you qualify for a USDA loan through this program in your particular area. I wish I could tell you that there was a flat out guideline for this to make it much easier to understand, but there are so many variances and considerations to make that this becomes nearly impossible. Direct loans have very strict requirements because they are the type of USDA loans that are geared toward those who show exceptional financial need. These funds can be used for buying, building or even repairing homes in rural communities. For those who are really in need, USDA loans in the direct loan category even come with repayment periods of up to 38 years, which is 8 years longer than the longest mortgage repayment average.

USDA loans that fall into the direct loans category may not exceed more than 1800-square feet, and the market value is typically required to fall below the loan limit in the area. The number differs significantly based on location, so one USDA loan applicant might be able to apply for a half million dollar home somewhere in California while a Georgia buyer is only able to secure a $100k USDA loan for a new house the same size.

Loan Guarantees

This particular type of USDA loan is used to offer low interest rates, and potential loans that do not require a down payment (please note that not putting down the required amount or choosing to forgo a down payment at all means paying private mortgage insurance premiums, which are quite expensive). This type of USDA loan allows buyers to apply for a mortgage through a local lender that participates in the USDA loan program, and the USDA loan guarantees backing to the lender.

This type of USDA loan has some more lenient eligibility options. For example, this type of USDA loan is available for refinancing as well as purchase or building. These USDA loans do not come directly from the U.S. Department of Agriculture, but rather from a third-party lender who partakes in the USDA loan program with the government department. This means that buyers/builders have to meet fewer income restrictions and requirements in order to qualify for a loan guarantee.

Home Improvement Loans and Grants

Because the USDA does not want to tell those who already own homes that they cannot get money from this government assisted program to help with the cost of homeownership, the department has issued this type of USDA loan to those who qualify. Any rural homeowners in the country are able to take a loan of up to $27,500 in the form of either a loan or assistance so that you can make needed repairs to your home. This is often something that is offered to those in need of new roofs, repairs that they cannot otherwise afford and other means of home upgrade.

USDA Loan Qualifications

You already know that in order to qualify for any of the above mentioned USDA loan types, you have to meet certain income requirements. Of course, we cannot tell you what these income requirements are, but we can tell you that it is easy to figure it out if you know your monthly gross income, your county and your family size using the U.S. Department of Agriculture’s USDA loan income eligibility homepage to figure it all out. Other USDA loan qualifications that are required by the USDA for a loan include the following.

  1. You must be a U.S. citizen or permanent resident
  2. The monthly payment of your new home must not exceed 29% of your income
  3. You must have a grand total of less than 41% of your income utilized for your new mortgage and all other debts included
  4. Your credit score must be higher than 660
  5. You must have a steady job for a minimum of 24 months
  6. No collections accounts within the past 12 months listed on your credit report
  7. The home must be (as listed with the USDA loan program requirements) “decent, safe and sanitary”
  8. Families or individuals may not be able to secure another loan
  9. You show the greatest need – meaning that you can prove a very low income for your area


The U.S. Department of Agriculture wants Americans to be able to buy homes that they might not otherwise qualify to buy based on income requirements, home size and down payment requirements as stipulated by a traditional mortgage. That means that this is a company that is willing to go to bat for you if your credit score is a bit low, if you are not quite on the cusp of income requirements and if there are some special circumstances to consider. Essentially, USDA loan programs are going to go the extra mile to ensure that you are given every possible avenue when applying for and qualifying for this type of loan.

You will not know whether or not you qualify for a USDA loan unless you fill out an application and see if you meet the requirements. Even if you think that you do not meet them, you might be surprised just what you can afford and just how you can afford to purchase, upgrade, renovate or build a new home using a USDA loan to get you started.

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