What is a USDA Construction Loan?
USDA Construction Loan Overview
A USDA Construction Loan is a government-backed loan program designed to help individuals build homes in eligible rural areas. It combines a construction loan and a permanent mortgage into a single loan, allowing borrowers to finance both the construction and eventual ownership of their home without needing to reapply for a separate mortgage once the construction is complete. USDA Contstruction Loans offer some clear benefits:
- No down payment: Like other USDA loans, this type often requires no down payment, making it accessible to borrowers with limited savings.
- Low interest rates: USDA loans typically offer competitive interest rates, which can help reduce long-term costs.
- Eligibility: Both the borrower and the property must meet USDA eligibility requirements. The borrower must have a low to moderate income and the property must be in a designated rural area as determined by the USDA.
- Single-close loan: It’s a “one-time close” loan, meaning it simplifies the process by avoiding the need for two separate closings (one for the construction loan and one for the permanent mortgage).
- Loan terms: Funds from the loan can be used for buying land, construction, and the home’s permanent financing.
The USDA Construction Loan is ideal for people who want to build a home in a rural or suburban area but may not have the traditional funds for a large down payment or multiple loan processes.
