There are other mortgage options available besides FHA loans, VA loans, and conventional mortgages. Prospective home purchasers in a rural location or an outlying suburban area may find that a property they are considering is eligible for a mortgage loan guaranteed by the U.S. Department of Agriculture.
Despite the name of the government agency, USDA home loans are not restricted to individuals engaged in agricultural pursuits. The loan program is intended to provide mortgage funding for all potential buyers of homes in rural areas. Although USDA mortgage loans have fairly typical underwriting standards, there are specific income limitations in each qualifying county.
The guaranteed mortgage program is not to be confused with the direct home loans provided by the USDA. The direct loan program is separate and does not involve a private lender. Similar to an FHA or VA loan, USDA guaranteed loans are made by a private lender. The USDA provides a guarantee in the event of default.
Because availability is limited to certain areas, your first concern is likely to be whether or not a specific property location is eligible for a USDA mortgage. The USDA maintains an online lookup tool on which the first listed link is to check property eligibility for single-family housing. The lookup tool requires at least a street address and a zip code.
The USDA website page provides another lookup feature to check the income eligibility for specific counties. If there are additional household members residing with you, information about them is used to determine your income limitation for USDA loan eligibility. If the home that interests you is in an eligible area and your income is within the limit, you are ready to further consider a USDA loan.
The mortgage can be for a new house or an existing home. The USDA guarantees 90 percent of the total loan amount, resulting in minimal potential risk to the lender. Closing costs may be financed along with the purchase price. If the purchase is for an existing home, the following costs may also be included in the total loan amount:
- Household appliances already installed
- Repairs to the existing structure
The areas eligible for a USDA home loan are not necessarily in completely rural settings. Some small towns in outlying suburbs offer low housing prices and are located within commuting distance of a larger city. Contact a mortgage loan specialist to determine if a USDA loan is a suitable option for financing your home purchase.