If you’re planning to buy a home in a rural area, you may be eligible for a USDA loan, depending on your income and other factors. USDA loans don’t require a down payment and are often available even if your credit isn’t great.
Understanding the ins and outs of USDA loans will help you determine the benefits and risks, and whether this type of loan is right for you. Here’s what you need to know about USDA loans, including who’s eligible for one.
What are USDA loans?
USDA loans are mortgage loans guaranteed by the U.S. Department of Agriculture. These loans don’t require a down payment and come with low interest rates. USDA home loans are designed to help low- to moderate-income families afford housing in rural areas of the country.
The Department of Agriculture defines a rural area as a region that has a population of less than 35,000. Housing repair loans are available to help buy, repair and update existing rural homes, including eliminating any health and safety risks.
In 2019, the Department of Agriculture provided more than 99,000 USDA loan guarantees to families across the U.S., Guam, Puerto Rico and the Virgin Islands.
USDA loans vs. conventional loans
USDA loans and conventional loans are both types of mortgages available to finance home purchases. The primary difference between these loans is that the federal government doesn’t back conventional loans. Like VA loans and FHA loans, USDA loans have the backing of the federal government, giving borrowers access to extra benefits.
Conventional loans typically require a 20% down payment, while USDA loans don’t require any down payment. Interest rates for USDA loans are often comparable or lower than you can find with conventional loans.
Borrowers who don’t meet down payment requirements for a conventional loan may be required to buy private mortgage insurance, or PMI. USDA loans don’t require you to buy mortgage insurance, though some types of USDA loans come with an annual guarantee fee. ReadMore
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