USDA Loan Helps to Make Purchasing a Home More Affordable

USDA Loan is established by the United States Department of Agriculture wherein it targets low to moderate-income households who are seeking an affordable mortgage for their housing in qualified rural areas in the country.

This helps eligible individuals to acquire a mortgage that does not need a down payment. Additionally, USDA loans have lower interest rates compared to traditional mortgages.

So if you are one of those people who would prefer a pleasant abode surrounded by greener pastures, then applying for a USDA loan might be a good start for you.

How Does the USDA Loan Program Work

The USDA actually offers 3 types of loan programs which are:

Loan Guarantees

This type of loan includes a participating local lender who will be the one to issue a mortgage to the applicant. In this case, have low and affordable interest rates.

Further, the applicant is not required to pay an initial down payment upon application. However, the program might still require the applicant to pay a mortgage insurance premium to proceed.

Direct Loans

Unlike loan guarantees, a direct loan is a mortgage directly issued by the USDA to eligible low-income households. Although income thresholds may differ based on the area you plan to reside, direct loans also involve low-interest rates down to 1 percent.

Home Improvement Loans and Grants

Whether you acquire a loan or an award from this USDA program, you can use the money that you received in renovating and/or improving your house.

Other than that, you can also avail a program package from USDA that includes both a loan and a grant. In this case, you may receive up to 27,500 US dollars of cash assistance.

Pros and Cons of USDA Loan Program

USDA loans may be of big help to needy families since it is more budget-friendly, however, just like other private or public lending institutions, it also comes with both advantages and disadvantages. Let us list some that you might consider before applying:


  • It does not require paying for a down payment – USDA loans guarantee a zero downpayment for borrowers. Thus, one need not be burdened by hefty down payments that other lenders require.
  • Beneficial for people who have a low credit score – When it comes to credit score requirements, the USDA loan program does not set a minimum credit score requirement. However, the applicant must still demonstrate responsibility and willingness to pay the loan back.
  • Beneficial for people who have a bad credit history – Unlike other conventional mortgage lenders, USDA loans demonstrate and practice more flexibility in reviewing qualified applicants using their Guaranteed Underwriting System. So if you are one of those who had their credit history unintentionally flawed, your application still has a high chance to get approved.
  • Easier refinancing process – If you are one of those who want to refinance their mortgage, the streamlined assist refinance loan program of the USDA will only take three weeks to process your mortgage and you need not file for credit reports, inspection, or home appraisal, unlike other lenders.


  • Geographical Requirements To be able to apply for a USDA loan, your home must be located in a qualified rural area. Eligible rural areas include a population of about 35,000 and should not be used for profit-generating activities.
  • A second property or vacation house is not allowed – USDA requires that the home is your main residence.
  • Includes income limits – Income limitations may vary depending on the area you live, thus if your income is higher than the income limits set by the area, your application may not be approved. If you want to know the income limit of the area you live in visit the USDA.
  • Includes an up-front fee – Although USDA loans do not include a down payment, applicants are still required to pay an upfront fee of several hundred dollars. This can be rolled into the total mortgage loan amount.


To apply for a USDA loan, the following are the general requirements one must meet:

  • Must be in need of a decent and clean primary home;
  • Must not be able to get another loan from other lending corporations or programs;
  • Must be a US citizen or a legal non-citizen of the country.
  • Must meet income limitations set by the area you live in;
  • Must be able to get a loan; and
  • Must not be banned in applying for federal programs.

In terms of property requirements, the following must be met:

  • Must live in a rural area that includes less than 35,000 population count;
  • The property must be less than 2,000 square feet;
  • The property must not be used for profit-generating activities;
  • The property must not include an in-ground swimming pool;
  • The property must meet the market value limit.

How to Apply

If you finished reviewing and preparing your eligibility requirements, the next step is for you to start your application. To proceed, find and talk to a participating lender in your area.

Contacting USDA’s office in your area is not a bad choice as well.

Frequently Asked Questions

It can be, with USDA’s zero down payment and an option of rolling up the upfront fee to the total loan amount is a good advantage for first-time home buyers. In fact, applicants with bad credit history still have a chance to get approved for a USDA loan so long as he/she is willing to pay back the loan.

Compared to other conventional FHA and VA loans, USDA loans do not require down payments and up-front payments. Low-interest rates are also a plus to your advantage in acquiring a USDA loan.

Yes, you can use the USDA loan you received to finance a condo. In this case, the USDA will also ask for guidelines from the FHA (Federal Housing Administration) to determine if your condo is eligible for a USDA loan.

It usually takes 35-40 days to process the closure.

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