Wondering how to buy a house with an USDA loan? It’s easier than you think! From the ultra-loan income Section 502 Direct Loan Program to the more accessible Guaranteed Loan Program, the USDA has made it easy to buy a house with low income as long as you’re looking in a rural area! To make things even easier, we’ve assembled all the information you need into one helpful guide!
What is the USDA?
The United States Department of Agriculture and Rural Development is an agency of the US Federal Government. This office is responsible for overseeing and improving the quality of life and economy in rural America. One of the functions of this office is to help rural residents buy safe, affordable housing and make necessary repairs to their homes. Thus, they provide loans and grants that help low income home buyers in rural areas.
How does the USDA help low income home buyers?
The USDA has several programs that help low income home buyers across the United States obtain safe, affordable housing for their families. These programs are available for low and moderate income households.
The Single Family Housing Guaranteed Loan Program provides mortgage guarantees for eligible applicants. The USDA will guarantee 90% of the loan so that the lender is paid even if the buyer defaults and stops making payments on the home. The buyer will inevitably lose the house but the lender’s losses will be covered by USDA.
There are many benefits to this program:
- You can purchase a new or existing home.
- You can include closing costs in the loan.
- You can include repairs and rehabilitation expenses, including carpeting, new appliances, heating/cooling equipment and disability modifications in the loan.
- You can include energy-efficient upgrades, including double-paned glass and solar panels.
- You can use the funds to install fixed broadband service to the household.
- If you are constructing a new home, you can include site preparation costs, including seeding, trees, fences, and driveways. You can also include connection fees or the pro rata installment cost for utilities.
To qualify for this program, applicants must meet specific income requirements and select a property that meets all the program criteria. You must be a US citizen, US non-citizen national or qualified alien to participate in this program. You must have the legal capacity to incur the debt, demonstrate a willingness to meet credit obligations and you must not have been previously suspended or disbarred from participating in federal programs.
The USDA merely insures these loans; the government doesn’t issue them directly. To apply for a USDA Single Family Housing Guaranteed Loan, you will need to contact a USDA-approved mortgage lender to get started. Please be aware that lenders can set their own qualification requirements in addition to USDA’s standards. Requirements may vary by lender and I encourage you to shop around for one that meets your needs!
Section 502 Direct Loans help low income (and very low income) American households purchase their own home. This program is designed to help those with a serious need who are unable to purchase a home through any other means.
This program offers some serious benefits to those who qualify:
- No down payments required.
- Interest rates as low as 1%, depending on the level of payment assistance you qualify for.
- You will have 33-38 years to repay the loan.
- You can use loan funds to build, purchase, repair, renovate or relocate a home.
- You can use loan funds to purchase and prepare building sites, including installing utilities such as sewage and water.
However, there are strict eligibility requirements for this program and there are also some drawbacks.
Income limits dictate that your household must have an adjusted income that is equal to or less than the low income limit for your area. The area is determined by the location of the home you want to buy.
Housing challenges must be proven. You must be without decent, safe and sanitary housing in order to qualify for this program. You also cannot be eligible for loans from other sources. Obviously, you also have to agree to live in the home you’re buying and make it your primary residence.
Property restrictions also apply. The home must be less than 2,000 square feet, cost less than the area’s loan limit amount and cannot have an in-ground swimming pool. It also cannot be designed for income producing activities. Finally, the home must be located in an eligible area. Usually, that means it must be in an area that has less than 35,000 people in it.
Loan limits can also restrict the type of home you can purchase. Your loan amount will be restricted by the area’s loan limit and the amount that you can repay.
As usual, the USDA requires that you must have the legal capacity to incur the debt, demonstrate a willingness to meet credit obligations and you must not have been previously suspended or disbarred from participating in federal programs.
For more information about Section 502 Direct Loans, visit the USDA website or contact your local Rural Development office for an application.
Section 504 Home Repair provides loans to very low income homeowners so that they can repair, improve or modernize their homes to remove health and safety hazards. Seniors who qualify based on income may be able to get help in the form of a grant that does not have to be repaid. The maximum loan amount is $20,000 and the maximum lifetime grant amount is $7,500. These programs can be combined for a total of $27,500 in assistance!
To qualify, applicants must be the homeowner and currently live in the home. They must be unable to obtain affordable credit elsewhere and have a family income below 50% of the area’s median income. The home must also be located in a qualifying rural area. You can check your property’s address here.
Applicants who can repay some, but not all, of the costs may be offered a grant/loan combination.
Applicants who are at least 62 years old and unable to repay a loan may qualify for a grant.
The loans must be repaid over a 20 year period with an interest rate of just 1 percent. Grants have a lifetime limit of $7,500 and must be repaid if the home is sold within three years of the disbursement date.
For more information on the Section 504 Home Repair program, visit the USDA website!