What Is A USDA Loan In Real Estate?

Are you looking to buy a home but terrified of sky-high real estate costs and an ever-increasing cost of living? You're not alone — it's getting tougher for young people to buy houses in today's market, according to CNBC. Fortunately, there's a new solution (one that pairs nicely with the recent rise of remote work) — taking out a USDA loan to purchase a rural home.

USDA loans are loans offered by the United States Department of Agriculture. Although the USDA offers several types of loans, the Single Family Housing Guaranteed and Single Family Housing Direct loans are particularly relevant to would-be homebuyers. They provide low-income families with the means to purchase rural properties that will serve as primary residences, according to the USDA. Since these loans don't require a down payment (via USDA) and rural properties are generally cheaper than urban homes, a USDA loan could be the key to purchasing your first house.

Does it sound too good to be true? You'll have to meet a few requirements to qualify for a USDA loan.

According to the USDA, if you're applying for a Single Family Housing Guaranteed loan (targeted at moderate-income families), you must have U.S. citizenship, be a U.S. non-citizen national, or be a Qualified Alien. You must also purchase a home in an area where your household falls under the median income threshold (for a breakdown of income level by county, you can consult this document).

Are you interested in applying for a Single Family Housing Direct loan (targeted at low to very low-income families)? According to the USDA, you must have U.S. citizenship, be a U.S. non-citizen national, or be a Qualified Alien. You must also have already tried and failed to finance a home through traditional avenues (i.e., a mortgage with an interest rate that you can afford). You cannot currently access "decent, safe, and sanitary" housing. You must be legally eligible for federal programs and loans. The home you purchase must be in an area where your household falls under the low-income threshold (you can check by consulting this document,) and the house you buy or build must be under 2,000 square feet.

In both cases, the home you want to purchase (or the land you want to build a house on) must be classified as official rural territory. If you're unsure which areas are eligible for loans, you can check via the USDA's eligibility map.