Thinking of buying a home in a rural area? Most homes buyers have heard of the conventional, insured conventional, FHA or VA loans. However, not very many buyers are familiar with a USDA loan.

When you bring up USDA many think of food safety, farmers, and farming help. They see this like the farm bill or the soil heath campaign. Not very many think of the USDA as a source for a housing loan.

A USDA loan is only for rural areas. The USDA has a map on their website that shows you if the area you are looking to buy in would qualify for the USDA loan program.

USDA offers two home purchasing programs for home buyers. The Direct Homeownership Loan and the Guaranteed Homeownership Loan . The huge difference between a Direct Housing Loans and the Guaranteed Housing Loans is the income qualification requirements.

To qualify for a Direct Housing Loans you must have low to very low incomes.

USDA defines the different income levels as followed:

• Very low income is below 50 percent of the area median income (AMI);
• Low income is between 50 and 80 percent of AMI;
• Moderate income is 80 to 100 percent of AMI.

In comparison, applicants for a Guaranteed Housing Loan can have an income of up to 115% of the area median income (AMI).

Either applicant’s proposed mortgage payment, which should includes the taxes and insurance, should not be more than 24 percent of an applicant’s income.

The USDA will also looks at the applicant’s credit as well as the property the applicant is planning on purchasing. The property you buy must be located within a USDA approved area and will also have its own requirements for qualification. The USDA has no specific price limitations on what type of home you can purchase with an USDA loan, but they prefer an applicant to buy a “modest” home.

Regardless of all of this, your first stop should be with an USDA approve lender (PDF) who can help you establish your loan limitations. You can also check the USDA website for your state to see what limitations these loans may have. A USDA loan is not only limited to purchasing a prospective home, you can also use the USDA loan program to build a new home or to renovate your existing home.

When you are looking to buy or sell a home and looking for an experienced real estate team, contact the Settles Team. We are ready to help you for all your real estate needs.