Loans are also subject to size limits and rate requirements that vary by program. However, borrowers must meet property, income and mortgage insurance requirements. These loans can be used by borrowers with lower incomes to finance larger portions of their home purchase or improvement. In addition to the USDA guaranteed loan program, the department also offers two direct-issue programs-the Section 502 direct home loan and the Section 504 home improvement loan. These loans are issued by USDA-approved lenders and insured by the agency, similar to how many conventional mortgages are backed by Fannie Mae and Freddie Mac-the government-sponsored entities that purchase most conventional mortgages from lenders and package them as bonds for sale to investors. The most popular USDA loan is the Section 502 guaranteed loan, which allows homebuyers to finance up to 90% of their home’s purchase price. The USDA offers three different types of home loans. Income limits for loans issued directly by the USDA are even lower, as legislation requires at least 40% of direct-issue loan funds be appropriated for loans to low-income households. This works out to $90,300 for households with one to four people in most areas. They must use those loans to finance a primary residence and must purchase two types of mortgage insurance, as well.Īdditionally, USDA-guaranteed home loans require that applicants’ income not exceed a certain limit-15% above the median salary for their area. Borrowers can potentially take out a mortgage at 100% of their home purchase price. To get a USDA loan, borrowers must live in a rural area, which the USDA defines as having a population of fewer than 35,000 residents. by offering low-interest, low-down-payment mortgages to borrowers with low to moderate incomes. These loans are part of the USDA’s Rural Development program, meant to encourage homeownership in small communities across the U.S. USDA loans are home loans issued or guaranteed by the United States Department of Agriculture.
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