October 9, 2019

USDA offers a handful of lending programs to assist low- and moderate-income borrowers by reducing the down payment. There is one USDA program that funds loans directly to low- and very low-income individuals, but most go through an approved bank or non-bank lender. In general the loans have decent rates, no prepayment fee, and a payback period comparable to that of a conventional mortgage.
These programs were designed to encourage rural development, meaning city homes are excluded. The USDA has an interactive, online tool to help determine if a property is eligible.
The program requires borrowers to meet certain income requirements, agree to personally occupy the dwelling (primary residence), be a U.S. citizen, U.S. noncitizen national, or qualified alien, have the legal capacity to incur the loan obligation, have not been suspended or debarred from participation in federal programs, and demonstrate the willingness to meet credit obligations in a timely manner. The program charges a fee of 1% of the loan amount upfront but this can be added to the loan balance and paid off as part of the monthly payment over the life of the loan. And the USDA charges a 0.35% annual fee on the loan amount. Again, the department allows borrowers to pay that fee over time, but the annual fee must be paid off over 12 months.