The Pros and Cons of a USDA Home Loan


USDA home loan may be an option for you if you are hoping to buy a home in a suburban or rural area with little down payment. It can be a good option if you are looking to buy your first home and don’t want to live in a large urban area.

USDA home loans are backed and insured by the U.S. Department of Agriculture and were created to help people put down some roots in certain rural locations. These loans help develop new areas of the United States.

One of the main requirements is that the property must be within certain geological areas. These areas are usually outside the city limits of major metropolitan areas. If you qualify then you can relocate, build, improve, or rehabilitate a dwelling as a primary residence.

You are allowed to borrow up to 100% of the appraised value of the home, which means you don’t have to come up with any funds. Coming up with a down payment can usually be a challenge for many home buyers.

There are many locations that fall under the qualified areas that are more suburban than you would think. You won’t just be living on a long and winding country road if that option doesn’t appeal to you. Examples of these rural development in Indiana are South Bend and Fort Wayne.

USDA home loans are backed by the U.S. Department of Agriculture, but the department isn’t actually giving you the home loan. You will apply and receive your loan from an approved lender.

There are pros and cons of USDA home loans that you should know about in order to make sure it’s the right choice for you.

These loans will typically be a 30-year fixed rate mortgage but if you choose to not put down any down payment, you do have to pay for mortgage insurance.

Pros of a USDA Home Loan

One of the main benefits and pros of USDA home loans is that there is no down payment required. There are flexible credit guidelines so it can be easier to qualify for than other loan options. The seller can pay the closing costs on these types of loans.

There is a low interest rate that is fixed so you always have an idea of what your payments are going to be. There is the ability to finance closing costs and repairs into the loan. Loans can be used for either initial purchasing or refinancing.

You can even build a home using this loan as long as you are building in the approved geological areas.

Cons of a USDA Home Loan

One of the main cons of a USDA home loan is the geographic restrictions. Those who want to live in cities, so they have a shorter commute won’t be able to take advantage of these loans.

Mortgage insurance is required if you don’t have a down payment or put down a smaller amount. However, the premiums for insurance can be financed into the loan.

While there are flexible qualifying requirements, there are income limits. Loans also can’t be used for duplex homes and are only for single-family owner-occupied residences.