USDA loan

Borrowers with low or moderate incomes in rural areas can take advantage of attractive terms offered via USDA loan programs.


USDA loans offer attractive terms and loose approval criteria for low-income borrowers.

If you want to live in the country and fear you may have trouble qualifying for a conventional bank mortgage or home improvement loan, a USDA loan may be the perfect solution for you.

What is a USDA loan?

This loan guarantee program is officially known as the USDA Rural Development Guaranteed Housing Loan Program. As you can probably guess by the name, the program focuses on property in rural areas. The USDA has established specific criteria for what qualifies as an eligible rural area. The USDA website has an address lookup tool where potential applicants can check to see if a property falls within an eligible area.

Advantages of USDA loans

The most appealing thing about a USDA loan is that it offers 100% financing. This means borrowers do not need any down payment, and closing costs and other allowed expenses can even be rolled into the loan. These loans also offer low fixed interest rates, long repayment periods, and more flexible/lenient approval requirements when compared to a conventional loan.

Types of USDA loans

  1. 1. Single Family Housing Guaranteed Loan Program

    This is a mortgage program in which the loan is guaranteed (at 90% of the loan amount) by the USDA. The goal is to assist borrowers who would be unable to get a mortgage through a conventional loan process. This process works in a similar way to other government-backed mortgage programs, in that the borrower would apply for a loan through an approved lender.

    Applicants must:

    • Be a U.S. citizen, U.S. non-citizen national or Qualified Alien.
    • Meet income criteria, which vary depending on location and household size.
    • Have a good history of paying bills and credit obligations.
    • Demonstrate ability to make monthly payments on the loan. Total loan payment must be under a certain percentage of household income.

    Most lenders want a minimum credit score of 640 for approval for this loan. Even for those lenders who will consider applicants with a lower credit score, those who meet or exceed this 640 minimum score will usually get expedited processing.

  2. 2. Single Family Housing Direct Home Loans

    This program, also known as the Section 502 Direct Loan Program, is where the USDA provides funds directly to assist property owners. The goal of this program is to help the most financially-challenged borrowers, who typically have an urgent need for housing assistance. The program helps those who are without “decent, safe and sanitary housing” obtain adequate housing by providing payment assistance. This assistance is in the form of a subsidy to help with mortgage payments for a limited period of time. The amount of assistance is determined by a formula based on the household income.

    Applicants must meet the criteria to be considered a low-income borrower, and must not be able to get approved for a mortgage through the typical process. They must also show that they are willing and able to repay debt. In addition to the location criteria, properties must usually be under 2,000 square feet and cannot be used for an income-producing endeavor.

    The amount an applicant can borrow will depend on their income, but cannot exceed the maximum limit established for that area. The loan offers low fixed interest rates, which can be as low as 1% with the payment subsidy. The loan term generally has a payback period of up to 33 years, although that can be extended to 38 years for very low-income borrowers

  3. 3. Single Family Housing Repair Loans & Grants

    Also known as the Section 504 Home Repair program, this program offers loans to property owners who are considered very low-income. These loans can be used to repair the home, make it more energy efficient or eliminate health or safety hazards.

    Applicants must:

    • Own and occupy the home.
    • Not have other conventional options for affordable credit.
    • Have a family income that is less than 50% of the median income for the area.

    Loans have a fixed interest rate of 1%.

    This program also provides some grants to homeowners age 62 or older who cannot obtain credit elsewhere, but the grants must be used to rectify health and safety problems in the property.

    The maximum loan is $20,000 and the maximum grant is $7,500. Borrowers may be able to receive a financing package that includes a combination of a loan and grants.

How to apply for a USDA loan

Borrowers interested in applying for a USDA guaranteed loan should contact their preferred local lender. Those interested in applying for direct loan or housing repair loan or grant should contact their nearest USDA branch office.