A USDA mortgage, also known as a USDA Rural Development Guaranteed Housing Loan, is a type of mortgage loan offered by the United States Department of Agriculture (USDA) to encourage home ownership in rural and suburban areas. The USDA mortgage is available to both first-time homebuyers and current homeowners who meet certain eligibility requirements.
To qualify for a USDA mortgage, borrowers must meet several criteria, including:
- Location: The property must be located in a designated rural or suburban area. You can check if a property is eligible by visiting the USDA’s eligibility map on their website.
- Income: The borrower’s household income must not exceed the maximum limit set by the USDA. The income limits vary by location and family size, but generally range from $91,900 to $153,400 for a household of four.
- Credit Score: Borrowers must have a credit score of at least 640, although some lenders may accept lower scores with additional documentation and a higher down payment.
- Employment: Borrowers must have a steady income and employment history for at least two years.
Once a borrower meets these requirements, they can apply for a USDA mortgage through a participating lender. The USDA does not directly lend money to borrowers, but rather guarantees the loan through a private lender. This guarantee reduces the lender’s risk and allows them to offer more favorable terms to the borrower.
Some of the benefits of a USDA mortgage include:
- No down payment: Borrowers can finance up to 100% of the purchase price of the home, which means they do not need to put down a down payment.
- Low-interest rates: USDA mortgage interest rates are often lower than those of traditional mortgages.
- No mortgage insurance: Unlike FHA and conventional loans, USDA mortgages do not require borrowers to pay for mortgage insurance.
- Flexible credit requirements: While a minimum credit score of 640 is required, USDA mortgages are more flexible than other types of loans, making them a good option for those with lower credit scores.
- Closing costs: Borrowers can include the closing costs in the loan amount, which can help reduce out-of-pocket expenses.
In summary, a USDA mortgage is a government-backed loan designed to help low- to moderate-income borrowers purchase homes in rural and suburban areas. It offers several benefits, including no down payment, low-interest rates, and flexible credit requirements. To be eligible, borrowers must meet certain criteria related to income, location, credit, and employment.