Getty Images
Loans from the United States Department of Agriculture are a sweet deal—offering 0% down, low-interest-rate mortgages in rural and suburban areas. Because the purpose of these loans is to help low- and moderate-income buyers afford a home, not everyone is eligible. To take advantage of this specialized loan type, applicants must meet the USDA’s qualifications.
The main criteria boil down to income, although the income restrictions are more lenient than many homebuyers realize. As a result, far more people qualify for USDA loans than ever take advantage of them. Don’t be in that group: This is a fantastic option for those who are eligible. Here’s how to determine if you qualify for a USDA loan.
USDA direct vs. guaranteed loans: What’s the difference?
Before diving in, it’s important to understand there are two types of USDA loans: direct and guaranteed.
Direct loans are for very low-income applicants and are funded and administered by the USDA directly.Guaranteed loans are for homebuyers with more moderate incomes. In this case, borrowers are financed by lenders, but the loans are guaranteed by the USDA. This means the USDA is on the hook to pay the loan in case the borrower can’t, which enables lenders to offer these loans without shouldering too much risk.
Both direct and guaranteed loans share many of the same general requirements. However, there are some important differences to know—and not just on the income front. With that distinction in mind, here’s what it takes to qualify for either type of USDA loan.