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What Areas Qualify for a USDA Loan?

Life in the city isn’t for everybody. Whether it’s the crowds, the noise, or just a personal choice, many homebuyers choose to settle outside of the nation’s densely populated urban areas. Wherever you choose to purchase, it’s important that it feels like home. If you’re the type to prefer an up-and-coming suburb or a quiet rural community, a USDA mortgage loan may be the perfect way to get you there.

WHAT IS A USDA MORTGAGE LOAN?

A USDA mortgage loan is a home loan backed by the United States Department of Agriculture. The primary goal of a USDA loan is to help the smaller, rural communities thrive by making property in those areas more affordable.

Essentially, a USDA loan is an affordable mortgage option for buying a home in a qualifying rural or suburban area.

Often referred to as a USDA Rural Development Loan, the program was put in place to improve the quality of life in rural America and boost local economies. Originally enacted by Section 502 of the Housing Act of 1949 to help American farmers, the USDA Rural Development Guaranteed Housing Loan Program has been amended over time and has been helping both American homebuyers and communities for 70 years.

USDA MORTGAGE LOAN BENEFITS

USDA loans allow you to purchase a home in qualifying rural and suburban areas with a 0% down payment and allow you to finance 100% of the home with reduced mortgage premiums. USDA loans typically feature below-market mortgage rates as well – though this is dependent on your credit history and other qualifying factors.
Additional benefits of USDA loans include:

  • Flexible credit qualifying criteria
  • Closing costs can be paid by the seller, or financed into the loan
  • Minimal cash to close
  • Stable fixed-rate financing terms
  • No maximum purchase price

USDA MORTGAGE LOAN ELIGIBILITY

As with any state or government program, certain eligibility requirements must be met in order to qualify. When you are attempting to qualify for a USDA-backed mortgage, requirements are set for you as the homebuyer, and the property you intend to occupy.

WHO IS ELIGIBLE FOR A USDA LOAN?

To start, eligible applicants must be a U.S. citizen or have permanent residency. Income limits are set based on both the household size and the county in which you plan on living. You cannot exceed these income limits if you plan to use a USDA loan. The USDA has a handy tool available to help you determine your income eligibility.

Applicants must also:

  • Agree to occupy the dwelling as their primary residence
  • Ability to prove creditworthiness, typically with a credit score of at least 640
  • Stable and dependable income
  • Demonstrate the willingness to meet credit obligations in a timely manner
  • Adjusted household income is equal to or less than 115% of the area median income
  • Have not been suspended or debarred from participation in federal programs
  • Purchase a property that meets all program criteria

In addition to the eligibility requirements put in place by the USDA, certain lenders may have their own requirements and internal guidelines for eligible applicants.

USDA LOAN LOCATION AND PROPERTY ELIGIBILITY

Along with the eligibility requirements placed on the applicant, USDA loans impose eligibility requirements on the location and property you plan to occupy. Fortunately, 97% of the geographical U.S. is eligible for USDA home financing with only major metropolitan areas generally being excluded.

The USDA loan is intended to help homebuyers in rural areas purchase a home. The USDA defines rural areas as open country, which is not part of an urban area. There are population requirements as well that allow up to 35,000 depending on the location.

To verify the property you intend to purchase is in an eligible location, the USDA has a tool to check eligible addresses on their website.

In addition to the rural location requirements, USDA applicants must purchase a home that meets the USDA loan property requirements. The USDA loan is designed to help low to moderate-income households find a safe residence, either through a build, purchase, or refinance home loan.

To help meet this goal, the USDA sets basic property requirements. These requirements include:

  • Must be located in a designated rural area, subject to the previously stated open country and population requirements
  • Must be the primary residence
  • The property must have adequate utilities, including water and wastewater disposal
  • Must have direct access to a street, road, or driveway
  • The dwelling must be in safe working order

Additional requirements are in place for both location and property eligibility, and your lender will work with you to determine that you, the location, and the property itself all meet the qualifying standards.

To help highlight these eligibility requirements, let’s use North Carolina as an example.

USDA LOANS IN NORTH CAROLINA

The Tar Heel State is a prime example where homebuyers consider financing their homes with a USDA loan. Of the 100 counties in North Carolina, all have a portion of the county that qualifies for USDA financing. The basic requirements we’ve highlighted above still apply, with small modifications based on the county in North Carolina you are choosing to purchase in.

Benefits of a USDA loan in North Carolina:

  • No down payment needed
  • 100% financing
  • No maximum loan amount in North Carolina
  • Flexible credit qualification
  • Fixed interest rates for predictable monthly payments

To verify if a property is eligible for USDA financing in North Carolina, use the USDA’s property eligibility website.

IS A USDA LOAN RIGHT FOR ME?

Ultimately, it’s up to you where you choose to live. If both you and your next home are eligible for a USDA loan, there’s no reason not to take advantage of benefits like 100% financing and no down payment. The USDA loan was designed to make homeownership more affordable and that’s the best thing a homebuyer can ask for.

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