Section 502 Guaranteed Rural Home Loans
The United States Department of Agriculture (USDA) created the Section 502 Rural Development Guaranteed Home Loan Program - or USDA Loan - to assist low to moderate income families achieve the dream of homeownership.
Though referred to as the USDA Loan, the USDA does not lend any money for the 502 Guaranteed mortgage but partners with approved lenders who finance each home. However, with the Section 502 Guaranteed Loan, the USDA does play a key role by backing a portion of each loan to safeguard lenders in case of loss. It is with this backing, or guarantee, that lenders are able to offer eligible rural homeowners advantageous rates and terms.
Get Started With Your USDA Loan Request
The USDA Loan is a perfect option for those who reside in rural areas, suburban areas and even suburbs of major metropolitan areas. These guaranteed loans have assisted thousands of homeowners purchase a home with affordable interest rates and loan terms; however, before you begin searching for your home, there are a few things you must take into consideration.
With the USDA Loan, there are certain home loan qualifications that must be met for the home to be eligible. With qualifications that include construction standards, income standards and cost limits, it is best to begin with the right expectations so that you will have a much easier time locating a home that is suitable and functional for your family, as well as the USDA Loan program.
A qualified rural area
A home purchased through the USDA home loan guarantee program must be located in a qualified rural area. Qualified rural area is defined as open country places, and homes in cities with populations of 10,000 or less. Under certain conditions, the home may be located in towns and cities of 10,000 to 20,000 in population. If you have questions regarding whether a potential home is in a qualified area speak with a USDA Loans.com representative.
New or existing home
You can shop for a new home recently constructed, or an already existing home. If you decide upon purchasing a new home built within the last 12 months, you will need the following:
- A certified home inspection approving the soundness of the foundation, framing, and meeting all local and state codes.
- Certificate of occupancy.
- A builder's 1-year home warranty.
Learn more about USDA Loans and new construction here.
If you decide to look for a home previously built, meaning it was constructed more than 12 months prior, the home must meet the following requirements to qualify for a USDA home loan guarantee:
- Structurally sound - The home must have been built using materials that achieve a structurally sound construction. The home must be in good repair at the time of purchase.
- Functional - The home must adequately functional as a dwelling. An adequate bedroom to bathroom ratio is taken into consideration. A functional home must have running water, appropriate ingress and egress, and adequate heating, cooling and venting. A barn converted into livable quarters may indeed make a good home. But it must meet the functional test.
- Any size or design - A USDA home loan mortgage is good for homes that are any size and design. As long as you the borrower qualify for the mortgage amount, you could purchase any size home that meets the needs of your family. However, the USDA home loan program stipulates that the home must be "modest" in size and design. According to the USDA Rural Development website, modest is "property that is considered modest for the area, does not have market value in excess of the applicable area loan limit, and does not have certain prohibited features."
- Owner occupied only - The home you purchase for yourself or your family must be your primary dwelling. Homes purchased through the USDA home loan guarantee program cannot be income producing, meaning you may not rent the home to others or make it a commercial building.
A previously constructed home must also show documentation and certification of a termite report, as well as a qualified home inspection.
For more information on the home requirements, see this page from our lending guide on property requirements.
Finding the right home to purchase using the USDA home loan guarantee program can be daunting. But knowing first-hand what you need to look for will help you shorten your shopping time - allowing you to move into a beautiful home soon!