December 3rd, 2018

Finance

It's easy to assume that the United States Department of Agriculture only handles things like inspecting food. But they also play a role in other parts of the country, including in buying a home. It surprises many to learn, but there are actually USDA home loans out there that potential home buyers could take advantage of.

USDA Home Loan Basics

The USDA home loan program is designed to issue loans to those in rural areas who may not have a high enough income to qualify for other, more traditional loans. The idea is to help homeowners, rural residents, and also to help strengthen the economy by encouraging home ownership in areas of the country that aren't as heavily populated. Those who qualify could get the funds to buy a home, repair or upgrade properties they already own, and more.

What Are The Income Requirements?

Unlike traditional loans that often require you to have a minimum level of income, USDA loans are actually given based on maximum amounts. In short, if you earn more than a certain level of income, you won't qualify. These levels vary depending on where you live and the type of loan that you are receiving, but generally if you earn more than 80 to 110 percent of the median income in your area, you won't be able to receive the loan since they are designed for lower-income home buyers.

What Other Financial Requirements Are There?

Along with the income level that you earn, a few other criteria must be met. These include:

A credit score of 620 or more

Steady 2-year history of employment

A debt to income ratio where at least 29 percent of your total income is disposable

As you can see, these aren't loans for those with bad credit or no credit - instead, the USDA loan is intended for those who have low levels of income.

Are There Property Requirements?

In addition to the requirements for your income, the property that you are considering purchasing must also meet basic requirements. Here are some of the main things to consider here.

 The property must be in a rural area or suburban area with fewer than 2,500 citizens.

Properties must be in the US or US properties such as those in Puerto Rico, Guam, and even the Pacific Islands.

Home must be modestly size with no in-ground pool

Property must not be used for business purposes in any way

Additionally, funds can be used for buying a home, removing health and safety hazards from a home, making a home more energy efficient, and more.

What About Loan Terms?

Interest rates, durations, and other terms will vary greatly from location to location, just as with any other type of home loan. In most cases, loans will be for 33 years though in some instances a 38-year loan may be available. This is only when applicants are found to be very low income but still capable of repaying the loan over time.

Other factors such as your location, the type of home, and so on will have an impact on terms. In most cases, down payments are required at all. Certain lenders could require one, however, and it may be based on an evaluation of your assets. The lack of a down payment requirement is one of the biggest benefits of these types of loans.

If you're in a rural area and don’t make enough annual income to qualify for a traditional loan, the USDA loan program could be the answer you're looking for.