The U.S. Department of Agriculture (USDA) is a branch of the U.S. government that focuses on improving rural conditions, supporting rural and agricultural development and natural resource management. Rural Development is an important program within USDA and includes a comprehensive program that makes fully funded home and real estate loans to qualified borrowers. A USDA mortgage can be an excellent choice for an individual or family planning to purchase a rural property. Although access to a USDA mortgage depends on the circumstances, it is generally considered one of the safest and most affordable home loan programs in the United States.
Originally, the USDA mortgage program was developed primarily to encourage agricultural expansion. Agriculture has long been an important component of both infrastructure and the economy in the U.S., and the creation of home and real estate loan programs helped provide incentives for agriculture. The Federal Farm Loan Act of 1916 helped create the first USDA loans that farmers could use for both buying property and delivering it. Later legislation helped expand USDA mortgage programs to other qualified borrowers to finance land and home purchases and even cover the cost of some repairs and expansions.
Income is a major factor in determining eligibility for a USDA mortgage. Generally, income should be considered low or very low, but the exact limits are based on the median income for the area of residence. Borrowers with qualifying income may be able to obtain a fully funded mortgage, but must demonstrate that they can make the mortgage payments based on their existing income. Mortgage payments are often quite low thanks to a generally low interest rate lock and a 30-year loan term.
Another important requirement for a USDA mortgage is the location of the property. To qualify, the property purchased must be located in an area designated as "rural" by the USDA. A list of designated areas by state is available on the USDA website; borrowers can also contact their local rural housing development office. Some counties may have a mix of eligible and ineligible areas, so it is very important to make sure a property is within a qualifying boundary.
Other criteria may also impact eligibility for a USDA mortgage. Generally, the borrower must intend to use the property as a primary residence; it cannot be purchased to rent to others or to occupy only part-time. In some cases, the borrower must demonstrate that he or she does not have an existing property that will serve as sufficient housing for the household. Although the credit requirements are not as stringent as many other home loan programs, borrowers must still have a relatively good credit score to qualify.