An in-depth examination of the major federally backed home mortgage loan initiatives
The History of the United States Department of Agriculture and the USDA Home Loan
The United States Department of Agriculture (USDA), according to its own website, was established in 1862 by President Lincoln, at a time when nearly half of Americans lived on farms. Currently, that number is roughly 2% of the population, but there remains in place many initiatives funded by the USDA that go well beyond the food safety measures the agency is best known for. With programs designed for everything from clean water and energy initiatives to infrastructure and farm development assistance, the USDA plays a key role in supporting American’s rural and farmland citizens in a wide variety of ways.
Despite being known as the key agency that oversees food and farm safety, as well as environmental studies, the USDA also has in place a number of government-backed home loan programs designed expressly for Americans who choose to live in our nation’s many rural communities.
Through the USDA Rural Development and Rural Housing Services plans, potential homebuyers can access loans for single-family and multi-family homes, and even small businesses. Much like the VA loan previously discussed on our blog, the USDA home and business loan programs are designed to assist would-be rural and farmland homebuyers who might otherwise have difficulty accessing a mortgage due to either low income or the often low price of housing in rural areas, which banks tend to shy away from lending mortgages for homes below $100,000.
Since taking office in January, 2021, Biden has pushed a number of government spending initiatives that have directly impacted the USDA and its ability to not only guarantee home loans, but also help homeowners at risk of foreclosure to remain in their homes. With hundreds of millions of dollars in infrastructure and community investments, the government seeks to assure rural communities that they will not be left behind as urban communities continue to develop and grow at a record pace.
USDA Loan variants and their many benefits
Though most people living in America’s rural communities might be aware of the existence of USDA programs, such as broadband expansion and energy accessibility, many might not be aware of how many different types of home mortgage and refinancing options there are available through the USDA. For example, the Section 502 Guaranteed Loan Program is explicitly designed to assist lenders and help “moderate income households the opportunity to own adequate, modest, decent, safe and sanitary dwellings as their primary residence in eligible rural areas.” For very-low and low-income buyers, the Section 502 Direct Loan Program helps homeowners “in eligible rural areas by providing payment assistance to increase an applicant’s repayment ability.”
Like the FHA and VA Home Loan Programs discussed in our previous posts, the USDA Guaranteed Loan Program is also a federally backed loan that offers less risk for private lenders because they guarantee a large percentage of the loan if the borrower defaults. In addition to this program, however, the USDA also provides loans directly for certain programs, which are outlined on their website.
One of the biggest factors that makes USDA home loan programs such a powerful tool for becoming a homeowner in a rural or farmland community is that buyers are not required to bring to the table the same things that they do for a conventional loan not backed by any government homeownership program. The biggest benefit offered through the Section 502 Guaranteed Loan Program: no money down. This is, of course, a game-changer, because one of the largest hurdles to homeownership for most Americans starts with the inability to save money for a down payment. Alleviating this particular roadblock is no small feat, and one that has undoubtedly contributed to the millions of homeowners created by the existence of the USDA Loan program, not to mention the millions more who have been able to keep their homes by receiving assistance through the Section 502 Direct Loan Program.
An additional benefit of the current USDA Rural Development loan programs is that the U.S. Government both caps interest rates and requires interest rates to be fixed throughout the duration of the loan. Unlike VA and FHA Loan Programs, the USDA guarantees loans through private lenders and also originates loans directly to qualified low- and very-low-income buyers. While the rates do vary slightly with the market, they are usually significantly lower than conventional loan interest rates, and the interest rates are locked in for the life of the entire loan. The amount of money this saves the buyer over the lifetime of the loan can be in the tens of thousands of dollars, making this benefit one that can substantially, and positively, impact the buyer’s future savings and wealth generation. And wealth generation, after all, is one of the main reasons to purchase a home, regardless of whether it is in an urban or rural community.
Other USDA Rural Development programs provide funding for repairs to properties, as well as to build a home in a rural area. There are also small business loans programs and home mortgage refinancing options that are designed to allow rural homeowners stay in their communities and invest in their futures. Because these programs are all backed by the USDA, refinancing and small business loans are a lesser risk for banks, which makes these options far easier to obtain than they might be if a person were trying to refinance or start a small business in a more costly urban area.
Though these benefits outlined here are significant and meaningful reasons to consider a USDA loan—especially as a low-income or very-low-income American—there are additional benefits beneath the umbrella of the USDA Rural Development initiative, as well as terms for eligibility that buyers are encouraged to research before moving forward. The USDA comprehensive eligibility assessment site is a valuable place to turn to learn the many ways their mortgage loan programs can benefit a first-time homebuyer looking to establish roots in a rural community. They also offer foreclosure-prevention programs to assist people at risk of losing their homes.
AHP 75 and America’s Most Affordable Communities
At AHP 75, where our mission is to bring the rates of homeownership up to 75% for all Americans regardless of income or race, we encourage prospective homebuyers to research the USDA Rural Development loan programs to see if buying a home in affordable rural communities is right for you.
AHP 75 is also pleased to note that our ally company, AHP Mortgage Direct, not only originates USDA Loans, but also provides micro mortgages as low as $5,000 up to $100,000 to help buyers purchase homes in America’s most affordable communities. Rural communities tend to be much more affordable than many urban communities, with properties larger and cheaper than their city counterparts. To learn more about our micro mortgage program, as well as to see our entire suite of services designed to help rural Americans who are prospective buyers through the entire process of buying a home, visit AHP 75 and see which programs are best for you. We can even refer you to a social-justice-oriented Community Impact Real Estate Agent in your area who can assist you in the search for your new home and help you navigate the home-buying process.
Are you wishing to become a homeowner in one of America’s many affordable rural communities? Visit AHP75.com to learn about our homebuyer programs designed specifically to help you join the ranks of homeowners and get onto the path of financial stability and wealth generation.
Aaron Morales is the Social Justice Writer for AHP 75, based out of Chicago, IL.