A USDA Rural Loan may be just what you need to buy the home of your dreams

When it’s time to buy the home of your dreams, there’s a lot to consider: affordability, location, the size of the home, a spacious yard, and more.

In most major cities, you can rarely find a property that meets all of things you want in a home.

The suburbs and surrounding towns may be your best option – and thanks to the USDA Rural Loan program you may be able to afford a larger house with a big backyard.


Don’t let the name fool you. The word “rural” does not necessarily mean you have to buy a property far from the city. Many small towns, as well as suburbs and exurbs of major cities, fall within the USDA definition of “rural.”

What is a USDA Loan?1

USDA loans are mortgages backed the U.S. Department of Agriculture as part of its USDA Rural Development Guaranteed Housing Loan program. This loan program can be used to buy an existing home or build a new home.

Who can receive a USDA Loan?1

Rural loans are available to first-time buyers and repeat home buyers – provided you are going to use the home as your primary residence.  (Vacation homes or second homes are not eligible.)

What features make USDA Loans affordable?2

These features combine to create a program that helps make homeownership affordable:

  • No down payment is required for a USDA loan. Buyers can finance 100 percent of a home’s purchase price.
  • Lenders who are approved by the USDA work directly with home buyers to provide these USDA-backed mortgages. Affordability is a key component of this program.
  • Typically, the interest rate on a USDA backed mortgage is lower than other conventional programs that feature zero or low down payments.
  • USDA mortgages require an upfront premium of 2.75 percent of the loan amount to be paid when the loan closes. However, the premium can be rolled into the mortgage.
  • A small annual fee of 0.50 percent, based on the loan’s principal balance, is also required. This is added to your monthly mortgage payment.
  • Beginning October 2016, USDA fees will drop to 1.00 percent paid at closing, and 0.35 percent paid annually.


Are there special criteria that buyers must meet?2

Home buyers should know that the USDA loan program is intended to help individuals and families who have modest means.

  • To be eligible for one of these loans, your household income must not be more than what is considered “low-to-moderate income” by the Department of Housing and Urban Development (HUD).
    • These amounts vary depending on the location of the home you are buying and the number of people in your household. (For example, a family of four in Arlington, Texas meets the annual income requirements so long as their combined income does not exceed $80,150.
    • Typically, a credit score of 640 or better makes a borrower eligible for a USDA loan. A credit record does not have to be perfect to be eligible for a USDA loan, as long as any isolated instances of credit problems are fully explained and supported with documentation.
  • The program also allows for non-traditional credit histories. That means if you have no credit score, you may be able to demonstrate that you can pay the mortgage by showing that you’ve paid rent, utility bills, and other obligations on time.

Is a USDA Rural loan right for you? We can help you determine if a USDA Loan makes sense for your family.  Contact Stearns today to learn more.


Source materials:

  1. Single Family Housing Guaranteed Loan Program. Web. 06 Jun 2016.
  2. HB-1-3555 SFH Guaranteed Loan Program Technical Handbook. Web. 06 Jun 2016.
  3. USDA Celebrates 25th Anniversary of Single Family Housing Guaranteed Loan Program. News Release. Web. 06 Jun 2016.

- By Michael Kearney, Jun 16, 2016