What is a USDA Loan?
USDA loans are mortgages backed by the U.S. Department of Agriculture. They are also a part of the USDA Rural Development Guaranteed Housing Loan program. This type of home loan is available to home buyers in rural, less-populated areas, with low-to-average incomes.
USDA Loan offers 100% financing with reduced mortgage insurance premiums and features below-market mortgage rates. With a USDA home mortgage, qualifiers could get low-interest rates and 0% down payment.
How USDA loans work
Using a USDA mortgage, buyers can finance all of the home's purchase price while getting mortgage rates better than the average. This happens because USDA mortgage rates are discounted. Furthermore, USDA loans are simple. The repayment schedule is standard, the closing costs are ordinary, and prepayment penalties never apply.
With a USDA loan, you don't need to pay a down payment. However, you are required to take a 15- or 30-year fixed-rate loan. Adjustable-rate mortgages are not available via the USDA rural mortgage program.
Rural loans can be used by both first-time buyers and repeat home buyers. Homeowner counseling is not required to use the USDA program.