USDA Loans: Not Just for Farmers

Middle and lower-class families in the United States deserve to own their own homes, but sometimes struggle with down payment and credit score requirements for home loans. Those who live in rural areas often deal with the combination of lower wages and unaffordable home prices and end up in dangerous living conditions or even on the verge of homelessness. Thankfully, the government has established the USDA loan program to help with home-buying in rural areas.

What is a USDA Loan?

The government offers insured home loans through the United States Department of Agriculture to support homeownership in rural areas. The USDA loan program lends to low to middle-income families regardless of whether they’re first-time homebuyers.
These loans, designed to help families afford the American Dream, will often finance up to 100% of the purchase price. A homebuyer may not need a down payment to qualify for USDA financing, and they could allow you to roll all your closing costs in the loan.

What are the Requirements of a USDA Loan?

To many, this may sound too good to be true. The government has placed restrictions on borrower eligibility. To qualify for a USDA financing, your household’s combined income must fall within established guidelines. Note that this includes every adult member of your household, not just the person applying for the mortgage.

However, income guidelines have been based upon the median incomes for your area plus median household incomes. The USDA has compared the cost of housing to its affordability when setting income guidelines. This ensures that families who need help qualify for the program. In some states, a combined income of close to $80,000 wouldn’t disqualify you from the USDA loan program.

Also, you must meet the following guidelines for a USDA direct loan:

  • Be without safe and sanitary housing
  • Unable to qualify for a loan with reasonable terms from other sources
  • Meet citizenship or eligible noncitizen requirements
  • Agree to live in the house as your primary residence
  • Have the legal ability to take on a loan
  • Minimum credit score of 620

You don’t have to be without safe housing or unable to qualify for a loan from another lender to be eligible for a USDA guaranteed loan. For both programs, however, the property must be located in a rural area.

The term “rural areas” can be slightly misleading and ambiguous. While your new home must be within an area supported by the USDA loan program, if you take a look at the interactive map on the USDA website, you’ll see that they lend in surprisingly large sections of each state.

What are the Property Restrictions on USDA Loans?

Just because the loans are offered by the U.S. Department of Agriculture doesn’t mean you’ll be living on a farm and milking cows. In fact, USDA loan financing doesn’t cover income-producing properties.

USDA loans can be used to purchase a new or existing residence that is less than 2,000 square feet. Its market value can’t be more than the applicable area’s loan limit, and there can’t be an in-ground pool on the property. If you already own a home, but it needs repairs or renovations, USDA financing can help with that, too.

Do You Qualify for a USDA Loan?

To find out if you qualify for a USDA loan, you can talk to an approved USDA lender or complete the USDA’s online questionnaire.

The online form walks you through a set of questions to determine eligibility. These will include income eligibility requirements, asking potential homebuyers to provide the state and county they plan on buying in, how many people live in the house and household income. Once you have input all the data, you’ll receive notification on whether you’re eligible or ineligible to apply for a USDA loan.

Local banks and mortgage lenders also offer USDA guaranteed loans. Lenders would be able to sit down with you to go over your eligibility. They can also answer any questions you might have about USDA financing and help you complete your application.

What are the Types of USDA Loans?

If you meet the qualifications for the USDA loan program, you’ll have the option of applying for two types of USDA loans.

Direct Loans

If you take out a USDA direct loan, you’re borrowing directly from the government. Meant to help low to middle-income families buy a house, USDA direct loans have stricter income restrictions than guaranteed loans.

Guaranteed Loans

A guaranteed loan is one which is granted by an approved lender but has an attached government guarantee. The USDA partners with lenders in many counties like rural banks or credit unions. The government guarantee ensures repayment to lenders, and thus those lenders are more willing to lend to individuals with lower credit scores or no down payment.

How to Apply for a USDA Loan

To apply for a USDA loan, you can either contact your local rural development office about direct loans or contact an approved lender for guaranteed loans. Like any loan or mortgage application, you will have to provide proof of income and other documentation as part of your loan application.

The Best USDA Loan Lenders

The majority of the lenders on the USDA’s approved lender list are smaller, regional banks that sometimes only operate in one state. To better serve our potential USDA applicants, we selected several lenders with a national or large regional footprint when creating this list of best USDA loan lenders.

Guaranteed Rate

While Guaranteed Rate has over 300 branches, and lends in 50 states, borrowers can also complete a fully online mortgage or loan application. This lender has a 96% customer satisfaction rate, per surveys, and makes rates and pricing transparent.


Operating primarily in 11 southeastern states, including Alabama, Georgia, and Mississippi, SunTrust offers USDA loans. It’s a great option for those who prefer to apply and speak to a mortgage broker in person. In 2018, they ranked highest for customer satisfaction in a survey by J.D. Power and Associates for home equity lines of credit. Furthermore, home equity lines, while not USDA loans, are a related product and borrowers can be reasonably assured this service extends to all mortgages.

Wells Fargo

This nationwide bank made our list because it serves borrowers in all 50 states. Their online mortgage application can be completed in less than ten minutes, or you can call 1-877-937-9357 to speak to a mortgage broker and apply over the phone.

New American Funding

This USDA-approved lender specializes in working with borrowers who have unusual credit histories or lower credit scores. They’ll work with you to help raise your score if you’re close to the USDA minimum score.

If you’ve struggled to save up a down payment, or past mistakes have hurt your credit score, the American Dream may still be within your reach with a USDA loan.

Dena draws upon ten years of experience in the banking industry to help borrowers make educated decisions.

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