Lauren Nowacki4-Minute Read
UPDATED: August 10, 2022
*As of July 6, 2020, Rocket Mortgage is no longer accepting USDA loan applications.
While many people know the United States Department of Agriculture (USDA) for its stamp of approval on choice meats, the government entity is responsible for much more, including farming, food safety, natural resource protection and developing the rural economy. One way it helps with rural development is through its USDA loan program.
A USDA loan is a mortgage loan that helps low- to moderate-income families purchase a home in an eligible rural area. The loan is backed by the USDA, which allows lenders to offer lower rates and no down payment. By making homeownership more affordable for many families, USDA loans, in turn, help these communities flourish and provide a better quality of life for rural residents.
There are a few different USDA loan programs. The two most common are:
The process for getting a USDA is similar to the mortgage process for other loans, with some modifications. Here are a few key differences to expect:
In order to get a USDA loan, the property the loan funds must serve as your primary residence. It cannot be an investment property, farm, vacation home, second home or a home you rent out. Eligible properties can have what’s considered “income-producing” type buildings, such as a silo or barn, but they must not be used for commercial purposes.
The home must also be located in a USDA-approved area, which typically is outside of a city or other metropolitan area and has a smaller population. Some suburbs may be included as well.
Upon appraisal, the home must also meet certain guidelines set by the USDA. These include: a structurally sound foundation, good roof, easy access from a road, functional heating and cooling, electrical and plumbing systems and adequate well and septic systems, if present.
There are several types of homes you can get with a USDA loan, as long as they meet the aforementioned eligibility requirements. These homes include: new construction and preexisting homes, manufactured homes, short sales, condos, townhouses and foreclosure homes.
Now that you know more about what to look for, you can search listing sites with better filters in place. You may want to work with a real estate agent who is well-versed in USDA properties and can help you find the best one for your needs. Once you find a home you love that you believe meets all the requirements, you can check to see if it is in an eligible area by entering the address on the USDA property eligibility map. It is best to begin your home search after you are preapproved for a loan. That way, you’ll know that you can secure funding to buy the home and understand how much home you can afford so you can budget accordingly.
Keep in mind that the final determination of whether the home is an eligible property will be made by the USDA Rural Development department once it receives your application.
For a Single Family Housing Guaranteed Loan, you’ll need to apply with a USDA-approved lender. The lender will handle the loan application process, working in conjunction with Rural Development. For a Single Family Housing Direct Home Loan, you can submit an application to your local USDA state office.
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A pocket listing is an agreement that allows buyers to see and purchase a home before it ever goes on the market. Learn more about what pocket listings are.