A Guide to USDA Loans

Photo by Realtor.com

While there are many different mortgage loans that buyers have utilized – like FHA or VA loans – there is one type of loan, USDA loans, that often gets overlooked. Let’s take a look at what a USDA loan can offer a buyer with the help of this realtor.com article.

A USDA loan, also called a Section 502 or 504 loan, is a mortgage that is either guaranteed or issued by the United States Department of Agriculture. These programs are specifically reserved for people with low or moderate incomes looking to buy in designated rural parts of the country. Lafayette county is designated as a rural part of the country and buyers can look into a USDA loan. We always suggest speaking with a local lender!

There are 3 main types of USDA loans.

1. Direct loans. These loans originate directly from the USDA, with no private lender involved. They are usually reserved for very low-income applicants with extremely generous terms, like 0% down and very low interest rates.

2. Guaranteed loans. These mortgages are offered by private lenders (use local!) that have been vetted and approved by the USDA, which then guarantees the loan. This, in turn, reduces the risk for lenders because if the homebuyer defaults on the mortgage, the government will pay the lender back. This enables USDA-approved lenders to pass along extremely attractive loan terms to borrowers, including 0% down payment and low interest rates.

3. Repair renovation loans or grants. These grants allow homeowners to repair or improve their home. They may also be available to low-income senior citizens who need to upgrade for health or safety reasons.

USDA loans have some wonderful benefits:
-0% down payment
-Lower interest rates
-Reduced mortgage insurance
-Lower credit score requirements
-Lower closing costs and other fees

USDA loans also have some restrictions:
-Geographic limitations
-Income thresholds
-Primary residence stipulations (no 2nd home buyers)