USDA Loans: The Pros and Cons

By: Nathan Gillin

Backed by the United States Department of Agriculture, USDA Rural Development Loans were created to develop new regions of the country and help those with low or moderate incomes build in certain rural areas. However, the term “rural” has a pretty broad definition. Around 97% of the counties in the U.S. are deemed rural, making the USDA Loan a possible option for many people interested in buying a home.

Pros:

• No required down payment
• Rates are typically lower than conventional loans
• Reduced Private Mortgage Insurance (PMI)
• Flexible credit and qualifying guidelines (640 minimum credit score)
• Low fixed interest rate
• Low income requirement 
• Repairs and closing costs can be financed into the loan
• No prepayment penalties

Cons:

• Geographic requirements/Urban areas not covered
• Maximum income, depending on the home
• Primary homes only, second homes are not eligible
• Duplexes ineligible