Single-Family Housing Guaranteed Loan Program
A USDA guaranteed loan is provided by the U.S. Department of Agriculture (USDA) in order to help low- and middle-income families afford safe and sanitary homes. Families who are approved for these loans may either buy new homes or rehabilitate existing homes. One main requirement of the program is that homes must be located in rural areas, in order to be eligible for financing from the USDA.
The guaranteed rural housing loan program has a variety of eligibility requirements, such as income limits and credit standards. In most cases, a homebuyer can only qualify if he or she is unable to obtain financing from any other source. Furthermore, applicants must use the loan for its intended purpose, such as buying a new home or making repairs and renovations. Below, learn more about qualifying for a USDA guaranteed loan, and discover for what the funds from these loans can be used.
How does a USDA guaranteed loan work?
The single family housing guaranteed loan program works differently than a conventional mortgage loan. Through this program, you will receive a loan note guarantee from the USDA, which will allow you to receive financing from a traditional mortgage lender.
In cases where a lender would otherwise deny your application for financing, based on your credit or other factors, the USDA note will help you obtain the loan that you need. In other words, the USDA single family housing guaranteed loan program is not funded directly by the USDA. Instead, you simply receive a guarantee that will help you qualify for financing when you would be unable to do so on your own.
How to Apply for USDA Guaranteed Loans
Because a USDA guaranteed loan is not funded by the USDA, you must apply for a loan through a private mortgage lender. Only certain lenders are approved to provide loans for the USDA, meaning that you will need to find a specific lender, rather than using just any mortgage provider. There are many different options in each state from which to choose.
Note that while the USDA provides a list of approved lenders, it does not endorse one over the other. If you are unable to find a USDA guaranteed lender in your state, a loan coordinator from the USDA can provide assistance.
Due to the fact that USDA guaranteed loans are provided by private lenders, the application process will vary, depending on the lender that you choose. Therefore, there is no standard application form that you can fill out to participate in this program.
Eligibility Requirements for USDA Guaranteed Loans
Before you apply for the guaranteed rural housing loan program, it is beneficial to review the eligibility requirements. To start, all of the following must be true:
- You plan to use the residence as your primary home
- You are a U.S. citizen, a U.S. national or a qualified alien
- You are legally capable of taking on the obligations of a loan
- You are not currently banned from participating in any federal programs
- You are able to meet the credit obligations of the program
- You have a reliable source of income that will adequately cover the cost of your mortgage
Keep in mind that even if you meet the USDA loan eligibility criteria described above, you still need to find a property that is in an approved area. Because properties must be located in rural areas, like with Section 502 loans, not all homes will qualify for this type of loan.
Regardless of where a home is located, note that it must meet certain standards. For example, the property must be situated on an accessible road, and must be set up to accommodate basic utilities, such as water and sewer systems. The lender is responsible for inspecting a site in order to determine if it meets the USDA program requirements.
Learn more about the eligibility requirements for USDA guaranteed loans by downloading our detailed guide.
What are the USDA guaranteed loan income requirements?
Once you have determined whether you meet the USDA guarantee loan requirements listed above, you will still need to qualify, based on your income and credit history. In general, you must have a low-to-moderate income, in comparison to the median income in your area. With this in mind, it is important to note that income levels are different, depending on the Metropolitan Statistical Area (MSA) where you live. Income limits also vary based on your household size and the value of your assets.
When determining your income eligibility for a USDA guaranteed loan, you will have to consider the income from all adults in your household. Mortgage lenders are responsible for making sure that your income falls within the necessary range, in accordance with the USDA rules.
Next, your credit history will need to demonstrate that you are both willing and able to make payments on a loan. Under the guaranteed rural housing loan program, lenders are required to look at your overall credit management history, rather than focusing on delinquencies and negative marks on your credit reports.
Remember that lenders use their own loan underwriting methods, which means that your eligibility may be determined differently, depending on the mortgage lender you choose. In any case, a lender’s analysis of your credit will need to comply with the USDA program requirements.
For what can a guaranteed rural housing loan be used?
If you are approved for a USDA guaranteed loan, the amount you receive will be based on what you can reasonably afford. Loans have standard repayment terms, and you will pay a fixed interest rate based on the current market.
Once you are approved for a USDA guarantee loan, you will have to comply with a variety of program requirements. Funds you receive from a USDA loan can only be used to pay for certain things, such as:
- A new or existing home that you will use as your primary residence.
- Fees to connect utilities such as water, gas and electricity.
- Preparing a site for building.
- Household equipment, such as major appliances or flooring.
- Energy-efficient home upgrades. (Although this differs from the terms of the Energy Efficient Mortgage Program.)
USDA guaranteed loans can be used for a variety of other purposes, as well. For more information on using these loans, download our informative guide.
What Are FHA Loans?
The Federal Housing Authority (FHA) insures mortgages and approved lenders to offer mortgages to eligible borrowers. Although available to all home buyers, the requirements of the loan make it attractive for first-time buyers. FHA-approved mortgages typically allow buyers to provide a smaller down payment and apply with a lower credit score than standard home loans. FHA loans covers many needs, including energy efficiency repairs and mobile home financing. Find out about FHA loan benefits in our guide.
Who Is Eligible For An FHA Loan?
If you are interested in getting a home loan through an FHA-approved lender, you must meet program requirements. The most important factor is choosing a mortgage provider approved by the FHA. Employment history is another crucial eligibility factor, as lenders will require proof of employment for the previous two years. Lenders will review your potential expenses, lending histories and your current debts to determine if you can pay your mortgage. Find out more about FHA loan eligibility by downloading our guide today.