USDA Home Loans
USDA loans are mortgages offered by the U.S. Department of Agriculture, intended to encourage homeownership in less densely populated areas of the country. The USDA acts as the guarantor for the mortgage, and a lender actually issues you the loan.
Features of USDA Loans
- 100% financing available
- Property has to be located in an eligible rural or suburban area
- Household income must meet certain guidelines
The property you’re purchasing must fall within approved rural areas to qualify for a USDA loan. But despite the program’s reputation for serving primarily rural areas, 97% of the US land mass is eligible for USDA financing. So you can’t buy in an urban area with a USDA loan, but chances are there are properties near you that qualify. To see whether the home you’d like to buy is eligible, search here.
The USDA requires that borrowers make 115% or less of their region’s median income to qualify for a USDA mortgage. For example, if your area’s median income is $50,000 a year, you could make as much as $57,500 and qualify. Increased income limits are available to families of five or more. Learn more about income eligibility here.
Mortgage Insurance for USDA Loans
Mortgage insurance for USDA loans is less expensive than it is for competing loan products, like conventional or FHA mortgages. The USDA requires an upfront fee of 1.0% of the loan amount, and a mortgage insurance fee equal to 0.35% of the loan balance per year. For example, if the home you are purchasing costs $200,000, you’ll owe $2,000 upfront and $58 per month. However, you don’t have to pay the upfront fee in cash, it can be rolled into your mortgage.