What Is a USDA Mortgage?

The United States Department of Agriculture (USDA) is a branch of the United States government that focuses on improving rural conditions, supporting rural and farm development, and managing natural resources. Rural development is a major program within the USDA, and includes a large program that gives fully-financed home and property loans to qualified borrowers. A USDA mortgage can be an excellent choice for an individual or family planning to purchase rural property. Though access to a USDA mortgage depends on qualifying circumstances, it is generally considered one of the safest and most reasonable home loan programs in the United States.

Originally, the USDA mortgage program was developed primarily to encourage the expansion of farming. Agriculture has long been a major component of both infrastructure and economy within the US, and the creation of home and property loan programs helped create incentive to farm. The Federal Farm Loan Act of 1916 helped create the first USDA loans, which farmers could use for both property purchases and supplies. Later legislation helped expand USDA mortgage programs to other qualifying borrowers, to finance the purchase of land and housing and even cover the cost of some repairs and expansions.

Income is a primary factor in determining eligibility for a USDA mortgage. In general, income must be considered low or very low, but the exact limits are determined by the median income of the area of residence. Borrowers with qualifying income may be able to obtain a fully-financed mortgage, but need to provide evidence that they will be able to make mortgage payments based on their existing income. Mortgage payments are often quite low, thanks to a generally low fixed interest rate and a loan term of 30 years.

Another major requirement for a USDA mortgage is the location of the property. In order to qualify, the purchased property must be within area designated by the USDA as “rural”. A list of designated areas by state is available on the USDA website; borrowers can also contact the local office of rural housing development. Some counties may have a mix of eligible and ineligible areas, making it very important to be sure that a property is within a qualifying boundary.

Other criteria may also affect eligibility for a USDA mortgage. Generally, the borrower must intend to use the property as a primary residence; it cannot be purchased to rent out to others or occupy only part-time. In some cases, the borrower must show evidence that he or she does not have an existing property that serves as adequate housing for the household. While credit requirements are not as rigorous as with many other home loan programs, borrowers still must show a relatively decent credit rating to qualify.