USDA Home Loans: Eligibility and Guidelines

USDA home loans are issued by the U.S. Department of Agriculture. They are designed to help low- moderate-income Americans who live in rural areas. They are used to buy, repair and rennovate their homes. There are a number of loans to choose from and each has its own eligibility requirements. While some loans are directly financed by USDA, others have more complicated financing structures. Every applicant must look at their financial situation and goals and see which loan works best for their particular situation.

Guaranteed Housing Loan

Guaranteed USDA Housing loans are not financed by the government directly. That responsibility is left to private lenders. The USDA guarantees the loan. This means that, if the borrower fails to repay the loan in full, USDA will step in and pay the lender whatever money the borrower owes. The loan is available to rural families that do not have adequate housing, yet earn enough money to be able to afford mortgage payments. The loans have 30-year terms and the interest rate is fixed and established by the lender.

In order to qualify for this loan, the borrower's income must be no more than 115% of the median income in the area. The borrower must prove that their family does not have adequate housing. The borrower must have a reasonable credit history. Furthermore, the loans can only be used to purchase homes that fit certain requirements. Those standards vary from area to area, and they often depend on local average property values. They must meet all local and state building codes. Newly built manufactured homes must also meet HUD Manufactured Housing Construction and Safety Standards and HCFP thermal and site standards.

Rural Housing Direct Loan

Unlike the Guaranteed Housing Loan, Rural Housing Direct loan is directly issued by USDA. It is designed for low-income individuals or families to purchase, repair, renovate and relocate a home. It can also be used to build a home from scratch. The interest rates are set by USDA. In order to qualify for a Rural Housing Direct Loan, the borrower's income must be no more than 80 percent of the area's median income. The borrower must prove that they do not have adequate housing. The borrower must also be able to show that they are unable to obtain credit anywhere. The borrower's credit history cannot include any significant debt, multiple bankruptcies or any other signs of chronically troubled credit history. The housing must meet the same standards as housing those purchase was financed by Guaranteed Housing Loans.

Rural Repair and Rehabilitation Loans

Like Rural Housing Direct loans, these loans are financed by USDA. However, unlike other of the above-mentioned loans, these loans cannot be used to purchase or build homes. They can be used to help low-income borrowers and their families repair, improve and modernize their homes, as well as to remove any natural or artificial health hazards within the existing structure. The loans cannot be more than $200,000. They have 20-year terms, and their interest rate is established at 1 percent. In order to qualify, the borrower must have an income that is no more than 50 percent of the area's median income. The borrowers must explain what they plan to do with the money and how their plan will make their home more safe and sanitary.