Moving to the country? This overlooked loan makes it so easy

With the COVID19 pandemic still going strong, many city dwellers may be considering a move to the country — and there’s a specific type of mortgage that can help make this a reality, called a USDA loan.

Offered by the U. S. Department of Agriculture and backed by the agency’s Rural Development Guaranteed Housing Loan Program, these mortgages are designed to help buyers with moderate or low income purchase property outside cities.

They accomplish this by offering several key benefits — such as low or no down payments and looser qualifications for income and credit history. USDA loans could be a boon to the wave of buyers who are currently contemplating fleeing cities right now.

As it happens, searches for homes in rural ZIP codes jumped more than 15% this May, compared with a year ago, according to Realtor. com data.

Yet many Americans aren’t aware of USDA loans, or assume that they don’t qualify. They may also have other assumptions about these mortgages that aren’t true or in step with recent changes in the terms.

If you want to avoid overlooking this hidden financing gem, here are a few things to know about USDA loans today.

The biggest misconception about USDA loans is that you have to live in the middle of nowhere.

In reality, homes qualify as long as they’re located outside a metropolitan area. In fact, communities with populations of up to 35,000 may be fine. The USDA offers an online map where you can search for properties that are eligible for the loans.

Matt Ronne, a loan originator at Motto Mortgage Preferred Brokers in Athens, Tenn., says USDA loans are a “vital asset” to home buyers in his area of southeastern Tennessee.

“It has been a highdemand product,” he says. “My county, McMinn, and most of the surrounding counties are 100% eligible for this type of financing, as long as those clients meet the credit, income, and property requirements.”

You don’t have to be destitute — and income limits recently increased

“Many people think that the USDA loans are meant to be subsidized housing, or that they are only intended for use by those with very low income,” says Gwen Chambers, a mortgage loan originator at Motto Mortgage Superior in Germantown, Tenn.

But that’s not the case. There are actually two types of USDA loans. Direct housing loans are for lowincome individuals; guaranteed loans are designed for moderateincome buyers.

The income limits have been raised, Hadder says, and some elements of the application process for certain USDA loans have been relaxed.

For example, in response to COVID19, the period for which certificates of eligibility are valid has been extended for some borrowers, and some parts of the application process will be streamlined, including credit reviews and loan processing.

Although the specifications vary by lender, borrowers typically need a minimum credit score of 640, whereas conventional home loans often require a credit score of 700 or higher.

“These new loan changes are designed to make it easier for a borrower to qualify for a USDA loan,” Hadder says.

Because certain parts of the application process will be waived or relaxed, she says, “borrowers will hopefully have a better chance of getting approved.”