What is a USDA mortgage?

Home Forums Mortgage What is a USDA mortgage?

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    A United States Department of Agriculture (USDA) loan is a type of government-backed loan guaranteed by the USDA Rural Development Guaranteed Housing Loan Program offered to first-time home buyers. This is a zero-down payment loan offered only for eligible plots in rural areas.

    These loans have lower interest rates compared to conventional loans and don’t require private mortgage insurance (PMI) because it is guaranteed by the government. There are three types of USDA mortgage programs:

    • Loan guarantee: A local lender offers a mortgage that the USDA guarantees. Thus, the borrower qualifies for low-interest rates and no down payment. However, the borrowers will have to pay a 1% upfront fee and an annual fee of 0.35% of the loan balance distributed across monthly payments. 
    • Direct loan: This is issued directly by the USDA and is meant for low- to very low-income borrowers without safe housing or access to a traditional mortgage. The qualifying income differs by region but the interest rates could go as low as 1% and term up to 38 years. There are additional subsidies as well. 

    Home improvement loans and grants: Homeowners can upgrade or repair their homes with these grants and loans. The limit for the loan is up to $40,000 and grants have a limit of $10,000. The loan term would be 20 years with a 1% interest rate. If you sell the house within three years, you’ll have to repay the grant money.

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StellarFinance, Inc. and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

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