USDA Home Loan

You may be eligible for a no-down-payment loan through the USDA home-loan program if you meet income guidelines and buy in a designated rural area.

USDA home loans, sometimes called rural development loans, are government-insured mortgages that help buyers purchase a home with no down payment. Buyers may finance their closing costs into their loan or receive seller assistance for minimal out-of-pocket costs. USDA mortgages usually have very low fixed-interest rates.

The USDA home loan program was created in 1991 to improve homeownership rates in rural areas, although not all areas covered by the loan are necessarily rural. The program allows for purchases, refinances, renovations and repairs.

Benefits of a USDA Home Loan

100 percent financing available with no down payment. The only other major mortgage program that offers this is the VA program.
Closing costs may be financed.
Credit requirements are more lenient than conventional mortgages.
Borrowers with prior credit issues, including prior bankruptcy or foreclosure may qualify.
Low, competitive fixed-interest rates.

USDA Home-Loan Requirements

You must meet the following requirements to be eligible for a USDA mortgage:

Home is located in a designated rural area.
Home will be a primary residence.
Principal, interest, taxes and insurance (PITI) payment does not exceed 29 percent of gross monthly income.
Monthly debt and mortgage payment does not exceed 41 percent of gross monthly income.
Credit score of at least 600.
Minimum income guidelines depend on county, state, and family size.

You may choose one of two types of USDA home loans: a direct loan or a guaranteed loan. Direct loans are made by the USDA to low-income borrowers whose household income is less than 80 percent of the median income in the region. Guaranteed loans are made by a bank and offer a broader income range.

You can review household income limits here.