Dreaming of a Home Out in the Country? Using a USDA Loan to Finance Your Home Purchase
Whether your dream home is a refurbished Joanna Gaines style farmhouse or a modern home out in the country, a USDA loan may help you make your dream a reality. The United States Department of Agriculture (USDA) single-family loan program assists qualified homebuyers by guaranteeing mortgages or making direct loans for the purchase of homes and land.
Types of USDA Loans
While the USDA has a number of loan products available, the organization's Section 502 Direct Loan Program and Section 502 Guaranteed Loan Program are available to US citizens and other legal residents who wish to purchase a single-family residence. Unlike other government loan programs, like the Federal Housing Administration (FHA) loans, the home must be located in a designated rural area like Kirkland in order to qualify for USDA financing.
The USDA loan program was established to assist low-income homebuyers in purchasing homes in rural areas. The program has two types of single-family loans available: direct and guaranteed loans.
USDA 502 Direct Home Loans
Many government loan products simply guarantee the mortgage against default thereby protecting the lending institution's investment. The Section 502 Direct Loan Program is unique in that it provides a direct subsidy that lowers the monthly payment. This program is meant to assist very-low income residents in rural areas. In addition to meeting the income requirements set for the area, applicants must be without safe housing at the time of application, be unable to obtain a mortgage from traditional sources, and purchase the home as a primary residence. The home cannot be intended to serve as an investment property.
Because the mortgagee is still responsible for the mortgage, he or she must demonstrate a willingness and ability their portion of the mortgage. The subsidy must be repaid when the borrower is no longer living in the home either due to a title transfer or sale.
USDA 502 Guaranteed Home Loans
Guaranteed home loans function more like a traditional government loan products. With this program, the government is guaranteeing a loan from a traditional lending institution. This guarantee by the government against mortgage default makes banks and mortgage companies more willing to lend money to individuals who may not meet their regular strict credit and/or income standards.
This program is available to US Citizens and qualified Aliens who meet the income standards set for the area and demonstrate a willingness to repay the loan. Additionally, the loan program is a little more flexible in how the funds may be used. In addition to the primary mortgage, guaranteed home loans can be used to refurbish a primary residence, refinancing eligible loans, and making a home habitable by renovating the mechanical systems including plumbing, HVAC, and electric.
How Do You Get Started?
Applicants must meet two initial requirements in order to pursue a USDA loan: income and location. The USDA Income Property and Eligibility site allows interested applicants to explore their options. First, applicants can enter a property's address to determine whether it is located in an eligible area. Then, applicants can enter the income information for their household. The site will ask for all income sources and amounts for adult members of the household and annual childcare expenses. This preliminary information will inform the applicant if they qualify for one or both of the loan programs as well as the maximum income limit for each. Income limits will vary by location, so an applicant who doesn't quite qualify in one county may qualify in another.