The USDA home loan from PrimeLending, also known as the USDA Rural Development Guaranteed Housing Loan Program, is a government-backed mortgage option guaranteed by the United States Department of Agriculture (USDA). It was originally designed to provide a mortgage alternative to rural property buyers who had limited financing options. Today, as populations grow and suburbs expand, it’s not just a loan for farmers and rural property owners. It’s becoming a viable mortgage option for people who want to live away from cities and enjoy country living.
Understanding USDA Home Loans
Discover who qualifies for a USDA home loan, what land is eligible and how much savings home buyers could enjoy in this quick video about USDA home loans.
USDA Home Loan Requirements
In order to be considered eligible for a USDA home loan, borrowers must meet specific USDA loan requirements. These include:
Eligible geographic areas — To get a USDA home loan, the property you buy must be in a USDA designated rural area, but it’s not all farmland. Almost 97% of the U.S. is eligible, which includes small towns and suburbs. The USDA mortgage eligible area requirement map(Link opens in a new tab) will show you all the areas where you can use this loan.
Income limits — The USDA rural development loan was originally designed for low- to moderate-income earners. The program’s guidelines define income level as being up to 115% of the area’s median income. In many parts of the country, this can be quite generous. For lower income buyers, a household’s entire income is considered during the application process, which helps increase eligibility. This can include income from a child or other family member living in the house but who isn’t listed on the loan application.
USDA home loans differ based on the kind of loan you’re interested in, but they all have the same eligibility requirements.
Is a USDA loan the same as a FHA loan?
USDA and FHA (Federal Housing Association) loans are both government-backed mortgages. While a USDA loan is designed for lower-income borrowers seeking to buy a home in a rural or suburban area, an FHA loan is geared toward borrowers who have saved a small down payment and a credit score that doesn’t meet conventional loan guidelines.
USDA Home Loan Eligibility
If affordability is top-of-mind, it’s natural to want to know what some of the eligibility requirements are to get a USDA mortgage.
As long as you meet the income requirements set forth for a USDA loan and the property is located in an eligible area, you are on the right path to apply. USDA home loan eligibility requirements include:
- U.S. citizenship or permanent residency
- A monthly payment that’s 29% or less of your monthly income
- Dependable income, usually for a minimum of 24 months
That said, USDA loans are set up to make it easier for borrowers with a lack of credit history or down payment to qualify for financing.
Advantages and disadvantages of a USDA loan
USDA home loans have several advantages over other mortgage options. Some USDA home loan benefits include:
No down payment — The USDA loan comes with 100% financing. You don’t need to make a down payment, which can often be a big obstacle for first-time homebuyers.
Lower interest rates — USDA loans offer a lower standard interest rate that is not tied to your credit score or down payment.
Low monthly private mortgage insurance (PMI) — As of 2023, the upfront mortgage insurance rate on a USDA loan is just 1%, with an annual fee of only 0.35%, the lowest numbers of virtually any mortgage financing program. The upfront fee can also be rolled into the loan, eliminating an out-of-pocket expense at closing.
Flexible credit requirements — Borrowers with lower credit scores or less than perfect credit history can often meet the program’s qualifying guidelines.
Length of the loan — The PrimeLending USDA loan is a 30-year fixed rate loan. It’s one of the most common types of mortgages, with low and affordable monthly payments.
USDA loan approval is based on geographical restrictions, income limits, and property specifications. However, all of these loan requirements are what makes a USDA loan an affordable option for many borrowers across the country.