USDA Direct Loan
A USDA Direct Loan, also known as a Section 502 loan, is a loan that is made directly by your local U.S. Department of Agriculture (USDA) Service Center. The home loan program is eligible to low-income homebuyers buying a home in qualified rural areas. With a USDA Direct Loan there is no down payment, no monthly mortgage insurance premiums, and you may even qualify for a subsidized interest rate! This program is hard to beat if you are a rural homebuyer who meets the USDA Direct Loan qualifications.
Benefits of a USDA Direct Loan
A USDA Direct Loan is a great product for low-income first-time homebuyers in rural areas. Here are just some of the benefits of a USDA Direct Loan:
- Potential for a subsidized interest rate
- No down payment (100% financing)
- Don't need to be a first-time homebuyer
- Seller can pay your closing costs
- Lower minimum credit scores may be acceptable
- Compatible with down payment assistance programs
- No monthly mortgage insurance premiums
- Available in all states with eligible rural areas
- Affordable loan terms up to 38 years
Eligibility for a USDA Direct Loan
To get this loan you need to buy a home in an eligible rural area. You also have to meet the program's household income limits. You may still be able to qualify for this loan even with a lower credit score. Your local USDA office will need to make sure that your monthly payments are affordable. They will want to see that your housing and other debt payments are not more than 39% of your gross monthly income (before taxes). To qualify for this program you are required to complete an approved homebuyer education course which can either be in a classroom or online.
USDA Direct Loan Fees
Ask the staff at your local USDA Service Center about the fees on the USDA Direct Loan. The USDA Direct Loan does have an up-front mortgage insurance premium that you typically finance as a part of your loan, but it does not have a monthly mortgage insurance premium like a conventional or FHA loan. Ask USDA staff if the USDA Direct Loan is a good option for you.