USDA rural housing loans, also known as Section 502, are mortgages for low-income citizens whose credit isn’t high enough to qualify for a traditional mortgage. These mortgages have zero down payments and interest rates can be as low as 1%.
Homes purchased with these loans must be in rural areas, meaning away from the busy city. The USDA offers 3 different types of loans, which we will explain in this article and hopefully help you find which one is better suited for your needs.
Types of USDA Rural Housing Loans
Guaranteed USDA Loans
Guaranteed USDA loan lenders are from private institutions, mortgage companies or banks that are partnered with the USDA. These are guaranteed loans because the USDA insures a portion of your mortgage, just in case you default on loan, which in turn reduces the risk for lenders and encourages them to give loans to individuals with low income and little collateral.
How to Qualify for a Guaranteed USDA Loan
To qualify for a guaranteed USDA loan the following requirements must be met:
- Have a dependable income that is below the area’s median income.
- Be a US citizen, US non-citizen national or a legal immigrant
- Have never been debarred or suspended from participating in other federal programs
- Meet credit obligations, on time (Meaning, make your loan payments on time)
- The property you purchase must meet all the programs criteria
- The property must be your principal residence
How to Apply for a Guaranteed USDA Loan
To apply for a Guaranteed USDA loan, first figure out where you want to live. Once you’re sure of where you want to live, reach out to a USDA approved lender in that area. To view a list of approved lenders nationwide by the USDA click HERE. You will be asked to present the following documents, so try to gather them beforehand:
- Proof of citizenship, permanent residency, non-citizen national or qualified immigrant status
- Proof of financial obligations such as bills
- Credit score report (If you have no credit history, you must present records of alternate credit such as utility payment and rental payment histories)
- Last 2 years of tax returns and pay stubs
- Identification and social security
Direct USDA Loans
Direct USDA loans are funded directly by the USDA and are a good option for low-income individuals who do not qualify for other types of financing and want to purchase a home. This type of loan may also be used for repairs, renovations, relocation of a home and even for building a home.
How to Qualify for a Direct USDA Loan
To qualify for a Direct USDA loan the following requirements must be met:
- Be a US citizen, US non-citizen national or a legal immigrant
- Have never been debarred or suspended from participating in other federal programs
- Not able to qualify for other loans from other sources
- Currently without a sanitary, safe and decent place to live
- The property must be your principal residence
- The market value of the home must be below the area’s loan limit, which is determined by the USDA
How to Apply for a Direct USDA Loan
To apply for a Direct USDA loan, you must contact your local USDA Rural Development office.
Each office has different procedures, so the documents they require from you may vary, as may the application process. For a list of USDA Rural Development offices by state, click here. Try to keep on hand the most commonly asked for documents such as:
- Proof of citizenship, permanent residency, non-citizen national or qualified immigrant status
- Identification and social security
- Credit score report (If you have no credit history, you must present records of alternate credit such as utility payment and rental payment histories)
USDA Home Improvement Loans
USDA Home improvement loans and grants help very low-income individuals with improvements and/or restauration of their home. Grants are limited to $7,500 (maximum amount) and loans usually have repayment periods of 20 years.
If you can cover part of the repair costs, you may be able to qualify for a loan and grant combination.
How to Qualify for a USDA Home Improvement Loan or Grant
To qualify for a USDA home improvement loan or grant you must meet the following requirements:
- Your family income must be below 50% of the area’s median income
- Not able to qualify for other loans from other sources
- Specifically for grants, you must be 62 years old or more, and unable to repay a loan made for repairs
How to Apply for a USDA Home Improvement Loan
To apply for a USDA home improvement loan or grant, you must contact your local USDA home loan specialist. The USDA has a tool to help you find a specialist and gives you more specific information about the program in the state of your choosing.
To use their tool, click here and once the page loads, simply select your state and you should see the contact information and more detailed information of the program in your state.
