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USDA Rural Development Loan Requirements

The U.S. Department of Agriculture’s Rural Development (USDA) Program is a government program designed for those who live in rural areas and want to own a home but may otherwise find the financial path to homeownership a hardship. In 2019, USDA Rural Development Single-Family Housing Program funding accounted for $16 billion in loans. If you’ve been longing to own a modest home in the country but thought it was beyond your reach, it may not be.

What Is a USDA Rural Development Loan?

The USDA’s Rural Development Program guarantees loans made through its Single-Family Housing Loan initiative. The goal is to make housing more affordable for people with limited financial resources living in rural communities by offering low-interest, fixed-rate loans. These loans come with 100-percent financing, zero down payments and generous repayment terms.

USDA Rural Development loans come in two forms—the Single-Family Housing Direct Loan Program and the Single-Family Housing Guaranteed Loan Program:

  • Single-Family Housing Direct Loan Program: USDA Rural Development provides low-interest, fixed-rate homeownership loans directly to qualified applicants. This is also known as the Section 502 Direct Loan Program and may provide payment assistance subsidies that reduce interest rates to as little as 1 percent as well as offer extended repayment terms.

  • Single-Family Housing Guaranteed Loan Program: Private lenders offer fixed-rate loans that USDA Rural Development guarantees for qualified applicants. USDA provides lenders with a 90% loan note guarantee for 100% financing, eliminating the need for a down payment.

USDA Rural Development Loans are meant to help people with low or moderate-income levels buy, build, relocate, repair or renovate a home. You can also use USDA loans to purchase land and prepare a site or lot for a home you intend to build upon.


USDA Rural Development Loan Requirements

To ensure that people who need help get it, guidelines and requirements are specific to the geographic areas eligible. In fact, all eligibility calculations are based on figures for the county or parish where a potential property is located:

  • The property must be in an eligible rural area. The USDA has mapped the entire country, establishing eligible and ineligible areas. As a rule, properties in cities and metro areas are ineligible, but rural areas and even some suburbs with populations less than 35,000 are typically eligible.

  • Your household income cannot exceed 115 percent of the median household income for that area. For example, if the median household income for your area is $39,000, calculating 115 percent of that would cap eligibility at slightly less than $45,000.

  • You must be unable to obtain conventional financing. USDA defines this as lacking liquid assets able to cover a 20-percent down payment and closing costs for the property.

  • You must live in the home as your primary residence—typically within 60 days of closing.

  • The dwelling must be “modest, decent, safe, and sanitary.” For Direct Loans, for example, the house cannot be more than 2,000 square feet, have a market value above the loan limit, have an inground pool or be designed for “income-producing activities.”

  • You must meet citizenship guidelines. You must either be a U.S. citizen or U.S. non-citizen national or meet eligible non-citizen requirements.

  • Maximum loan limits are based on your income and ability to repay the debt combined with the area loan limit for the county.

  • You must be legally able to incur the loan and not be barred or suspended from federal programs.

If you already own a home, additional conditions apply. For example:

  • You cannot own more than one property financed through the USDA Rural Development Program at a time. If you already have one, you would have to sell it before closing on another USDA Rural Development loan.

  • Your current home must be inadequate for your housing needs in some way. Examples of eligible factors include disabilities, overcrowding or job relocation beyond reasonable commuting distances.

  • You may be eligible to keep one single-family dwelling if you can show you are financially qualified—renting or leasing out the home you wish to keep, for example.

These loans are particularly attractive because they don’t limit acreage and allow for a single closing that covers both construction of a home and the long-term permanent mortgage.

How to Apply for the USDA Rural Development Loan

To serve rural populations as effectively as possible, the USDA Rural Development Program has designed its programs to offer applicants a level of assistance best suited to their situation.

  1. To apply for the Single-Family Housing Direct Loan Program, you’ll submit an application to your local USDA Rural Development office. The USDA offers an online Single-Family Housing Direct Self-Assessment tool that helps potential applicants assess their options. Both the self-assessment tool and formal applications can be found on the USDA Rural Development website.

  2. To apply for the Single-Family Housing Guaranteed Loan Program, you’ll work with an accredited financial lending institution, also known as an SFH Guaranteed Lender. You can find a link to active lenders listed by state on the USDA Rural Development Single-Family Housing Guaranteed Loan Program webpage under the “To Apply” tab. Your lender can help qualify you and get you started in the process of buying or building a home.

La Capitol Federal Credit Union is an approved, experienced lender for USDA Rural Development loans in Louisiana, and we’ve helped many Louisiana residents achieve their dream of homeownership. If you’d like to learn more about USDA Rural Development Program loans and how you can become a homeowner too, our mortgage financing specialists are ready to help you get started.


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