History of the USDA Loan Program

The USDA (United States Department of Agricultural) Rural Development loan program has its roots in the Dust Bowl and Great Depression. Rural housing was either primitive, without running water or electricity, or non-existent. Many who had lost their family farms to the Dust Bowl were living in dangerous shanty towns. The National Industrial Recovery Act of 1933 allotted $25 million to then President Roosevelt, “for making loans for and otherwise aiding in the purchase of subsistence homesteads.” This program yielded over thirty projects, including homesteads and garden homes, in its first year. Displaced workers and farmers found housing, a subsistence living, and dignity through the program. 

The Housing Act of 1949 took this a step further. It addressed the problem of urban overcrowding and stipulated the building of low-income housing. The act also expanded on previous legislation that enabled borrowers to purchase and improve farms. 

Nearly eight decades later, the program has guaranteed millions of loans for homeowners in rural and underserved areas. It offers loans and grants for the building of single family and multi-family homes and issues grants to communities for infrastructure improvement projects like upgrading and maintaining water treatment facilities. 

What is a USDA Home Loan and Who Qualifies?

USDA Rural Development guarantees home loans in rural and underserved areas up to 101% of the purchase price. Just as with VA loans, there are USDA-direct and USDA-guarantee loans, meaning you can borrow directly from the program, or from an approved lender. The program is meant to serve low-to-moderate income borrowers who are seeking to buy or repair a home in a rural area and offers refinancing. Additionally, the program offers grants and loans for repairing and modernizing a home you already own and disaster assistance. 

USDA guaranteed loans are income restricted and the website offers tools for determining if you are eligible for a home loan in your area. The income cap is no more than 115% of the area median income and the borrower must agree to occupy the dwelling as their primary residence.  The term is thirty years, the loan is zero down for those who qualify, and the 1% guarantee fee can be rolled into the loan. There is an annual fee which can be prorated monthly.   

USDA direct loans are in the form of payment assistance for very low-income buyers. The amount subsidized must be paid in full on the sale of the property, or if you transfer title or no longer live there as your primary residence. The income cap is between 50-80% of the area median income. These loans are geared towards borrowers who would have difficulty qualifying without the subsidy. 

Check out our Mortgage Loans eBook to view the different types of mortgage loans from conventional to government-backed (VA, USDA, and FHA). Each loan type was developed to serve a different demographic, and each have done their part to grow our nation and put homeownership within reach for millions of Americans. 

Questions about USDA Loans? Ask one of our Real Estate Loan Specialists by calling 503-588-0211, option 4 or schedule a call here.

Resources

USDA Self-Assessment Tool
USDA income and property eligibility resources

Written by: Elena Christian

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History of VA Loans
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