USDA mortgages are home loans backed by the U.S. Department of Agriculture. They are available to low- to moderate-income borrowers looking to buy a home in a rural area.
That said, the definition of “rural” doesn’t necessarily mean out in the middle of nowhere. As you can see on this map, many towns and suburban areas qualify as rural.
USDA mortgages can be 100% financed, so they do not require a down payment. There is also no minimum credit score, but if your score is below 640, your application will need to be manually underwritten.
Mortgage insurance is not required for USDA loans. However, you will be charged a 1% upfront fee (called a guarantee fee) as well as a 0.35% annual fee.
Depending on your income, you can fall into one of two mortgage programs offered by the USDA.
If your income is in the “low” or “very low” threshold for your area, you may be eligible for the Direct Program. This program is funded directly by the federal government and may even include mortgage payment assistance.
If your income falls in the “low to moderate” range, you could be eligible for the Guaranteed Program. These mortgages are offered by USDA-approved lenders and are backed by the USDA.
VA home loans
The program includes both VA direct loans that are funded and handled by the government, as well as VA-backed loans that are handled by private lenders.
VA direct loans require no minimum credit score, no down payment and no PMI. They also generally have lower interest rates than you’ll find from other types of lenders.
But VA-backed loans may have credit score and other requirements, depending on your lender.
While you aren’t required to make a down payment or pay mortgage insurance, you will need to pay a one-time VA funding fee. This fee is calculated as a percentage of your loan amount and depends on various factors, including the loan type, number of previous VA loans you used, down payment amount, and so on.
FHA home loans
An FHA loan is a type of mortgage insured by the Federal Housing Administration. The loans are geared towards homebuyers with low credit scores and limited funds for a down payment. The benefits make FHA loans particularly attractive to first-time homebuyers, but repeat buyers also are eligible.
If your credit score is between 500 and 579, you will be required to make at least a 10% down payment. If your score is 580 or above, you’ll only be required to put 3.5% down.
With most FHA loans, you will need to pay the FHA’s mortgage insurance premiums (MIP). A premium will be charged at closing, plus you’ll be charged annual premiums.
If you put down 10% or more, you can remove the MIP after 11 years. But if your down payment is less than 10%, you’ll have to pay the annual MIP for the entire length of your loan.
That’s different from conventional loans, where mortgage insurance can usually be removed after you’ve built up 20% equity in your property. That is, after your LTV drops to 80% or lower.