Couple with house keys

“Rural America is a place everyone can call home,” said Agriculture Secretary Tom Vilsack as he kicked off National Homeownership Month 2022.

Recognizing that expanding opportunities for homeownership is essential to the vitality of communities in rural, Tribal, and underserved areas, the USDA (United States Department of Agriculture) partners with independent lenders like Citizens Bank to provide affordable home loans to qualifying individuals and families.

Wondering if a USDA home loan is an option for you? Here’s what you need to know.

What Is a USDA Home Loan?

The USDA’s Rural Development division currently offers two different programs for homebuyers:

  1. Single Family Housing Guaranteed Loans – aka Section 502 Guaranteed Loans – enable moderate-income households to purchase, build, rehabilitate, improve, or relocate a home. These loans provide 100% financing, meaning that no down payment is required. Typically, these loans come with standard terms at affordable fixed rates, and refinancing options may be available. You can apply all year round with an approved lender like us.

  2. Single Family Housing Direct Loans – aka Section 502 Direct Loans – are subsidized mortgages for lower-income individuals or households who are currently without decent, safe and sanitary housing. Terms range from 33 to 38 years, and typically no down payment is required. True to their name, these loans are issued directly by the USDA and interested applicants can get started on the agency’s website.

For current homeowners with lower incomes, the USDA also offers home repair loans, with grants possible for those age 62 and over. Additionally, the agency awards grants to nonprofit organizations engaged in construction and rehabilitation projects.

Who’s Eligible?

For either USDA home loan program, applicants must be U.S. citizens, nationals, or qualified aliens looking to buy or build a primary dwelling in a designated rural area. Much of East Tennessee is currently eligible, with the exception of certain more densely populated neighborhoods in and around Knoxville, Oak Ridge, Maryville, Morristown, Witt, and the Tri-Cities region. To look up a specific address or browse the entire map, click here.

Both programs have income limits, but they are quite different from one another. For example, as of July 8, 2022, a two-earner household with no dependent children in Campbell County, Tennessee could not exceed $103,500 in annual income to qualify for a Guaranteed Loan, while for a Direct Loan the cutoff would be $50,500. To enter your info and determine your income eligibility, click here.

The other big difference between the two USDA home loan programs are the additional requirements for Direct Loans. Applicants must currently be without decent housing and adhere to size, value, and use restrictions on the financed property. To review all the rules and complete a self-assessment, click here.

Pros and Cons of USDA Home Loans

There are various advantages and disadvantages to these programs compared to conventional home loans, FHA loans, VA loans, and other residential mortgage products. Here are a few to consider:



  • No down payment required
  • Flawed credit history may be OK
  • Low origination fees
  • Highly competitive fixed interest rates
  • Funds can also be used for conveyed appliances
  • Sellers can pay closing costs
  • FHA-approved condos are eligible
  • Expedited refinancing for existing USDA borrowers
  • No set loan size limit
  • No set acreage limits
  • Construction-to-permanent loans may be available

  • Strict geographical and income requirements
  • Income-producing activities may be prohibited
  • Mortgage insurance cannot be removed
  • Longer underwriting times
  • Second homes are not eligible
  • Duplexes are not eligible
  • No refinancing options for non-USDA borrowers
  • Cash-out refinancing is not available
  • No or minimal flexibility on term lengths
  • New dwellings must conform to specified codes
  • Special rules apply to manufactured homes

What’s the Next Step?

Regardless of your location, income, experience level, and goals, Citizens Bank can help you explore all your options and provide attentive, personalized guidance every step of the way. That’s what we’ve done for four generations of homebuyers in East Tennessee. Just reach out to one of our friendly local lenders and we’ll work together to find a mortgage solution that’s a perfect fit for you.

Citizens Bank is an Equal Housing Lender. Citizens Bank is not acting on behalf of the federal government. Program terms, eligibility, and conditions are subject to change.