Are you looking to buy a house in a small town? Have you ever wondered what it takes to finance a farm? Do you have a poor credit history but are looking to purchase a property soon? USDA loans may be able to help you fulfill your goals when it comes to purchasing a house in a rural area of the United States. USDA loans provide an opportunity to get a mortgage for a house located in a rural area with very attractive terms. In addition to that, even though it has certain eligibility requirements, they are quite easy to fulfill for many people, especially low to moderate-income households. This article provides an overview of what a USDA loan is, how to get it, and why you might want to qualify for it.

What Is a USDA Loan?

USDA loan is a mortgage loan that is backed by the United States Department of Agriculture, and it provides opportunities for people who want to purchase a house in a rural area of the United States. Because it is backed by the US Department of Agriculture, USDA loans tend to have a favorable interest rate compared to conventional loans. In addition to that, USDA loans require virtually no down payment and have no credit score requirements. This is a great option for people who have a low credit score or do not have spare cash for a down payment.

Some people may think that rural areas are far away from large cities or do not have much infrastructure. The United States is a large country, and 97% of its area is rural. This means that people who are planning to get a USDA loan have quite a bit of choice when it comes to where to buy a property. Every state and almost every county in the United States has areas that are eligible for USDA loan financing. It is even possible to find an eligible rural area just outside of large cities like New York or San Francisco. Even though there is an abundance of regions where a house can be financed with a USDA loan, there are certain eligibility requirements that must be met by a borrower to qualify for this loan.

Who Is Eligible for a USDA Loan?

A USDA loan may be a very attractive mortgage option for many people because of the competitive interest rates, no requirement for the down payment, and very low mortgage insurance premiums. Unfortunately, not everyone may be able to receive this type of loan. The USDA eligibility requirements try to target low to moderate-income households who may be struggling to purchase a house on their own. There are multiple requirements that a borrower must meet to qualify for this loan:

  • Residency Status

If you are applying for a USDA loan, you must be either a US citizen or a lawful permanent resident of the United States. It is impossible to qualify for this loan if you have temporary resident status in the USA. A non-US citizen may still be able to receive other mortgage types such as conventional or FHA loans. On the other hand, the process for getting a government-backed loan as a non-US citizen is much stricter than for US citizens and lawful permanent residents.

  • Property Location

One of the biggest restrictions a USDA loan has is the location restriction. You may not be able to finance a house with this loan anywhere. A USDA Loan Eligibility Map may help you understand where you can purchase a property, and what are the income limits for each specific region.

  • Household Income Limit

Another important eligibility requirement for getting a USDA loan is the household income limit. A household may purchase a property with a USDA loan only if their income is less than 115% of the median household income in the area. This means that if the median household income in an area of interest is $70,000, then you may be able to get a USDA loan for a house in that area only if your household income is less than $80,500.

  • Type of Residence

Only a primary residence may be financed with a USDA loan. A primary residence is a property where the owner lives most of the time. It cannot be rented out as it would not be considered a primary residence. It also cannot be used as a secondary residence such as a summer house. If a property purchased with a USDA loan is used in any way other than a primary residence, you may be charged with mortgage fraud that may have significant consequences.

  • Debt-to-Income (DTI) Ratio Limit

Just as for any type of loan, a lender must ensure that you may be able to pay off your debt and have enough money for a living. Different loan types may have different DTI ratio limits. In the case of USDA loans, the DTI ratio must not exceed 41%. This means that your monthly debt payments for your credit cards, car loans, and student loans may not exceed 41% of your monthly income.

Why Should You Consider It?

USDA loans are truly unique in their terms and conditions. It is up to you to choose the best mortgage available for your case, but it may be impossible to find a conventional mortgage or another government-backed loan that allows you to put down as little as 0% with such competitive rates. Even though this loan may not appeal to people who are looking to live in large cities, there are many ways to take advantage of this loan for people who are struggling to save enough money for a down payment. Even households, who own property elsewhere, may want to choose to relocate and turn their current primary residence into an investment property while getting another house with a USDA loan. Regardless of the reasons why you want to purchase a house, if you are eligible for a USDA loan, you should consider it because it will help you get your house faster and cheaper than a conventional mortgage would.

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