What’s the difference between a USDA guaranteed loan and a USDA direct loan?
The U.S. Department of Agriculture offers two main types of USDA mortgages — guaranteed loans and direct loans.
USDA guaranteed loans are mortgages that are insured by the USDA, meaning if you were to default on the loan, the agency would repay your lender. This helps lenders make low- or no-down-payment loans to borrowers who may have lower credit scores or limited income.
You’ll work with a USDA-approved lender to get a USDA guaranteed loan. In addition to the lenders listed here, you can also find a list of all approved lenders organized by state on the USDA website.
USDA direct loans come straight from the USDA rather than a mortgage lender. These home loans are for borrowers who are unable to qualify for a USDA guaranteed loan and whose income is below 80% of the median household income in their area.
Basic requirements for USDA guaranteed loans
There are several qualifications both you and the property you’re hoping to buy will need to meet in order to be eligible for a USDA guaranteed home loan.
USDA mortgages are meant for lower-income borrowers, so your household income must be below 115% of the area’s median household income. The income threshold is adjusted depending on how many people are in your household. The USDA lets you look up whether your income qualifies on its website.
Since the USDA’s home loan programs are focused on revitalizing rural America, the property you’re buying must be in a designated area. You can use the address lookup tool on the USDA’s website to see whether the home you’re interested in will qualify.
» MORE: Learn more about USDA loan requirements