A USDA loan is a zero-down payment mortgage designed to help low- and moderate-income buyers in rural areas achieve homeownership. These loans come in two forms: guaranteed loans offered by approved banks and direct loans issued by the USDA. USDA loans are generally more affordable than conventional mortgages due to government backing, resulting in lower interest rates and no need for private mortgage insurance. As of mid-2024, interest rates for USDA guaranteed loans averaged 6.69%, while direct loans had a fixed rate of 4.75%. However, these loans have specific eligibility requirements, including income caps and property location restrictions. Various lenders offer USDA loans with differing terms and credit requirements. For instance, Guild Mortgage and Flagstar Bank have flexible options for borrowers with lower credit scores. Despite the benefits like no down payment and lower interest rates, USDA loans come with drawbacks such as stringent income eligibility and longer processing times.
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