A mortgage that is backed by the U.S. Department of Agriculture is known as a USDA construction loan (USDA). The objective of the program is to increase housing availability and affordability in rural areas. Homebuyers borrow money from a conventional lender, and the USDA backs the loan, similar to a conventional USDA loan. A USDA construction loan allows borrowers to fund the construction of a home, in contrast to a standard USDA loan, which allows borrowers to purchase an existing home.
USDA Construction Loan
If you are planning to build your dream home, the USDA loan program may be a good fit for you. This loan program from the United States Department of Agriculture helps low-income people buy homes in rural communities. Because it is a government program, the qualifications are stricter than a traditional mortgage, but the loans can be acquired at competitive interest rates.
The USDA loan program has several advantages when it comes to home building:
- The first mortgage amount is limited to $417,000, which is lower than most conventional loans.
- The loan terms can be up to 38 years instead of the usual 30 years.
- The down payment can be as low as 3 to 5 percent.
- Interest rate is fixed for the life of the loan.
- The USDA loan program has several requirements that potential homebuyers must meet:
- The borrower must be a first-time home buyer, have an income of not more than $100,000 per year, and be a resident of the home for at least 12 months.
- The home must be located in a rural area or a qualifying Native American community.
- The borrower must be willing to assume the existing loan or take out another loan to pay off the existing home loan.
- The borrower must have an acceptable credit history.