USDA Home Loan Explained

Buying a home with no or minimal money used as a down payment can provide opportunities for buyers that otherwise may not be able to become homeowners. Fortunately for today’s buyers, there are a few programs that can help them qualify for a mortgage with a very small down payment. One that is not widely discussed is the USDA Single Family Housing Guaranteed Loan Program; here’s our breakdown of how USDA home leans work:

What is a USDA Home Loan?

The United States Department of Agriculture, USDA, administers the program but does not actually loan money. Similar to loans backed by the Department of Veterans Affairs, VA, or Federal Housing Administration, FHA, these loans are guaranteed by the USDA. Private lenders, such as banks or credit unions, still loan money to the home buyer but they know that the USDA will pay if the borrower is unable.

This allows lenders to assume less risk and as a result, they are okay requiring less money down.

Who Can Use the Program?

Contrary to its name, the USDA loan is not only available for those in an agricultural setting. The USDA loan is designed to help “low- and moderate-income households the opportunity to own adequate, modest, decent, safe and sanitary dwellings as their primary residence in eligible rural areas.” To use the USDA loan, applicants must meet income requirements and be purchasing a home for their own primary use in an eligible area.

Potential homeowners can look up each property’s address to see if it qualifies or talk to a lender about using a USDA loan in their area. The loan can be used for new homes, existing homes, and even homes that need some renovations.

If coming up with a sizable down payment is holding you back from your dreams of home ownership, the USDA loan may be just the answer you are looking for. If you are interested, you should talk to a lender in your area about your eligibility and the type of home you want to purchase.