How Does the USDA Rural Housing Guarantee Loan Program Work?

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How Does the USDA Rural Housing Guarantee Loan Program Work?

The USDA Rural Housing Guaranteed Loan Program is an important option for low-to-moderate income individuals for obtaining financing for housing.

According to the USDA, the Rural Housing Guaranteed Loan Program, "assists approved lenders in providing low- and moderate-income households the opportunity to own adequate, modest, decent, safe and sanitary dwellings as their primary residence in eligible rural areas.”

Approved applicants may use the funding to build, rehabilitate, or relocate a dwelling in an approved rural area.

How Does the Program Work?

Despite its name, applicants don't receive funds from the USDA itself. Instead, the applicants receive loans from third-party lenders that are backed by the U.S. government.

Specifically, the USDA offers a  guarantee to approved lenders to reduce the risk of extending 100 percent loans to eligible buyers who reside in rural areas. 

What Are the Benefits?

The Rural Housing Guaranteed Loan Program offers several key benefits to eligible participants:

  • Loan access: The primary benefit of the USDA loan program is extending loan financing options to low to moderate-income individuals and families.
  • Lower interest rates: Backed by the USDA, lenders are generally comfortable offering recipients lower interest rates on loans. These rates are often lower than the standard rates for 30-year, fixed-rate mortgages.
  • No down payment: Qualified buyers can purchase a home with no down payment, significantly reducing the up-front costs required to own a home. This also means there is no private mortgage insurance (PMI) required—buyers will need to pay an upfront premium that is similar to PMI, but this typically costs less than PMI plans and can be financed into the loan itself.
  • No credit score requirement: The USDA loan program itself does not require applicants to meet credit score thresholds. However, many lenders will have their own credit score requirements that must be met before financing is offered.

Am I Eligible?

To receive this financial assistance, applicants must meet certain criteria:

  • U.S. citizenship, or status as a non-citizen national or Qualified Alien
  • Annual income must fall within certain limits
  • Purchased property must meet all program criteria
  • Agree to personally occupy the home as the primary residence
  • Show a legal capacity to incur the loan obligation
  • Have not been suspended from participation in federal programs
  • Demonstrate the willingness to meet credit obligations in a timely manner

For most people considering this loan, income eligibility will be the most significant criteria.

To qualify for the Guaranteed Loan Program, applicants can have an annual income of up to 115 percent of the median income for the area.

Cost of living and income rates vary widely in California; to see whether your income level qualifies for this program, you can find a full listing of state income limits on the USDA’s website.

Are you a California resident or just interested in learning more about low-interest housing loans? Übermortgage is here to help. Contact us today to discuss whether you may qualify for government-backed financing to support your dreams of home ownership.

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