USDA Mortgage Qualifications

USDA mortgages are available to assist low-income individuals in rural areas.
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The U.S. Department of Agriculture offers two types of rural development mortgages: Section 502 direct housing loans and single-family housing guaranteed loans. These loans are used to assist low-income individuals or homeowners in rural areas. Funds from these loans may be used to purchase sites, as well as to repair, renovate or relocate a home. The loans can have terms from 30 to 38 years.

Income Qualifications

According to the USDA, applicants for direct loans must have “very low or low income.” The USDA defines “very low income” as below 50 percent of the area median income, whereas it defines “low income” as between 50 and 80 percent of the area median income. Applicants for guaranteed loans may have an income of up to 115 percent of the area median income. As such, income qualifications depend upon an applicant’s state and county.

Property Eligibility

To be eligible for a Section 502 loan, the property must be designated as being in a rural area. The USDA provides two definitions of “rural area.” The first defines a rural area as open country that is not associated with an urban area. The second definition states a rural area is a town, village or city that is rural in character with a population less than 10,000 or that is not contained in a Metropolitan Statistical Area and “has a serious lack of mortgage credit” and a population between 10,000 and 20,000. However, the USDA also provides exceptions to the rural area requirement.

Housing Requirements

The USDA sets requirements on the housing placed on the mortgaged property. Housing must meet thermal and site standards set forth by the Housing and Community Facilities Programs and the applicant’s state. The housing on the property also must be considered “modest” for the area, and applicants must agree to occupy the dwelling permanently. The USDA lists prohibited features of the property that will ensure ineligibility for the loans. These prohibited features are swimming pools and land or structures that are income-producing.

Credit Qualifications

An applicant for a USDA mortgage must have a credit history that demonstrates the applicant is reasonably able or willing to repay debts. However, an applicant must also be unable to secure necessary credit from other sources to be eligible to a USDA mortgage. An applicant will be denied a Section 502 loan if he has an outstanding judgment against him by the United States in a federal court.

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