This year isn’t what any of us expected, and between coronavirus, lockdowns, social unrest, and natural disasters, many Americans have been inspired to relocate, with an increasing number looking to move away from big cities.
While leaving the city may have some hidden costs, if you have the privilege of remote work and the funds to relocate—you may be looking for a quieter, slower-paced lifestyle in rural America—you’re not alone. According to a recent Realtor report, there was a 15% uptick in rural home searches in May.
With rock-bottom interest rates, you may also be eager to buy a home. But if you’re struggling to save enough for a down payment, there may be an option you haven’t considered: USDA mortgages. Here’s what to know about these loans.
The benefits of a USDA home loan
The U.S. Department of Agriculture (USDA) provides funding to lenders for mortgages in rural communities. The purpose of these loans is to assist homebuyers who may not otherwise qualify for a traditional mortgage.
One of the biggest benefits of USDA home loans is no down payment. Another perk is lower interest rates. Although 30-year mortgage rates are hovering below 3%, USDA rates may be even lower. You may also pay less in mortgage closing costs.
USDA also offers loans and grants to low-income homeowners—including the elderly—to make home improvements or remove health and safety hazards.
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How to qualify for a USDA home loan
The downside of USDA home loans is the strict eligibility criteria. The home must be your primary residence in an eligible area. There are also income limits based on location and your household size. You can check your family’s eligibility with this income eligibility calculator.
To qualify for a Direct Home Loan or Housing Guaranteed Loan, you may be a U.S. citizen or permanent resident with a green card. The mortgage payment (principal, interest, taxes, and insurance) must be 29% or less of monthly income, according to NerdWallet.
You also need proof of reliable income for at least 24 months, and applicants with a credit score of at least 640 may be more likely to qualify. But as Realtor reports, some parts of the application have been relaxed due to COVID-19. You can learn more about USDA’s underwriting criteria here.