The USDA offers fully financed home and property loans to qualified borrowers in rural areas. Eligibility is based on income, location, and other criteria, and the program was originally developed to encourage agricultural expansion.
The United States Department of Agriculture (USDA) is a branch of the United States government that focuses on improving rural conditions, supporting rural and agricultural development, and managing natural resources. Rural development is a major program within USDA and includes a large program that makes fully financed home and property loans to qualified borrowers. A USDA mortgage can be a great option for an individual or family planning to purchase rural property. Although access to a USDA mortgage depends on qualifying circumstances, it is generally considered one of the safest and most affordable home loan programs in the United States.
Originally, the USDA mortgage program was developed primarily to encourage agricultural expansion. Agriculture has long been an important component of the infrastructure and economy within the United States, and the creation of home and property loan programs helped create incentives for agriculture. The Federal Farm Loan Act of 1916 helped create the first USDA loans, which farmers could use both to purchase property and supplies. Later legislation helped expand USDA mortgage programs to other qualified borrowers, to finance the purchase of land and homes, and even cover the cost of some repairs and expansions.
Income is a primary factor in determining eligibility for a USDA mortgage. In general, income should be considered low or very low, but the exact limits are determined by the area median income. Income qualified borrowers can obtain a fully financed mortgage, but must provide evidence that they will be able to make the mortgage payments based on their existing income. Mortgage payments are typically quite low, thanks to a generally low fixed interest rate and a 30-year loan term.
Another important requirement for a USDA mortgage is the location of the property. To qualify, the property purchased must be within the area designated by the USDA as “rural.” A list of designated areas by state is available on the USDA website; Borrowers can also contact their local rural housing development office. Some counties may have a mix of eligible and ineligible areas, so making sure a property falls within a qualified boundary is very important.
Other criteria may also affect eligibility for a USDA mortgage. In general, the borrower must intend to use the property as a primary residence; it cannot be bought to rent to others or occupy only part time. In some cases, the borrower must show evidence that he or she does not have an existing property that serves as a suitable dwelling for the home. Although the credit requirements are not as stringent as with many other home loan programs, borrowers still need to show relatively decent credit to qualify.
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