What’s Rural? Surprising Areas Classified As “Rural” By The USDA Mortgage Program

March 5, 2017 - 4 min read

Half The US Population Lives In Designated Rural Areas

Location, location, location always matters when it comes to real estate values. But it’s even more important if you want to finance your purchase with a USDA mortgage.

USDA loans, popular because they don’t require a down payment, have low mortgage insurance premiums and low mortgage rates. They are limited to borrowers who meet income requirements (maximum eligible income depends on your location) and buy property in a designated rural area.

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How Do USDA Home Loans Work?

The USDA mortgage can be used to build, renovate, improve or relocate a residence in an eligible area.

Income eligibility is based on both your household size, location and your annual income. In most areas of the country, a household with one-to-four people must have an income of $75,650 or less for USDA mortgage eligibility.

In higher-cost housing markets, the limit is as high as $153,400. Larger households of five to eight people can have an income as high as $99,850 in most regions and up to $202,500 in high-cost markets.

The USDA mortgage program is sometimes referred to as a “Section 502” loan or a “Rural Housing” loan. However, the definition of “rural” is broader than you may think.

What’s Rural?

Some would-be homebuyers may bypass the USDA loan program thinking that “rural” means they have to buy a farm.

However, it’s not that restrictive. The USDA defines rural areas as “any areas other than a city or town that has a population of greater than 50,000 inhabitants; and the urbanized area contiguous and adjacent to such a city or town.”

This definition leaves plenty of room for areas that you might think are suburban or part of town to be classified as “rural.”

The USDA loan program doesn’t have any minimum land requirement, either, so you don’t have to buy a farm or even a single-family home. Townhouses and condos are allowed to be financed with USDA loans. You just need to use the property as your primary residence.

“Rural” Areas Where You Can Buy Using A USDA Mortgage

The USDA loan program is available throughout the country, not just in states known for their agricultural production.

Walking Distance To Shops

For example, Klamath Falls, Oregon, has museums, a performing arts center, restaurants and shops, along with proximity to Crater Lake and a wildlife refuge.

You could buy the single family home at 517 N. 4th Street for $144,900. The 2,405-square-foot house, three-bedroom, two-bathroom house overlooks Lake Ewauna and yet is within walking distance of shops and restaurants.

Beaches and Big City

If you like to live close to the beach, but also love to visit or work in a big city, you can find a place along Lake Michigan about an hour-and-a-half from Chicago. The 936-square-foot cottage at 127 S. Clinton St. in New Buffalo, Michigan, has three bedrooms, two bathrooms and a screened porch for $119,900. Nearby are restaurants, shops, a beach and marina and an Amtrak station for even faster trips to Chicago.

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New England Charm

If you prefer New England, you can use a USDA loan to purchase a five-bedroom, two-bathroom single family home at 146 Imperial Avenue in the charming Vermont town of Bennington. The house has mountain views, a patio and a lawn. Bennington is known for Bennington College and its well-preserved historic downtown, which has cafes, bakeries, bookstores, antique stores, a theatre, a music store and restaurants.

Florida Hot Spot

Vermont too cold? You can look for a house in Florida like this single family home in Port St. Joe on the Gulf of Mexico. Located at 1309 Marvin Avenue, this 1,584-square-foot home, priced at $150,000, has three bedrooms and two bathrooms. Port St. Joe offers access to beaches and fishing and has a small walkable downtown area with a marina, shops and restaurants.

Wild West

If you prefer desert air, you can look for property in the quirkily-named town of Truth or Consequences in New Mexico. Known for its hot springs and its retro downtown with shops and restaurants, the town was renamed in 1950 in honor of the popular game show’s anniversary. You can find properties such as the single family home at 925 W. 9th Ave., a 1,908-square-foot ranch-style house with four bedrooms and two bathrooms, priced at $149,900.

As you see, the definition of “rural” is a lot broader than most people realize, at least not when it comes to USDA mortgages.

What Are Today’s Mortgage Rates?

Today’s USDA mortgage rates are still quite affordable. But even though they are government-backed, the government does not set rates and pricing for them. It’s up to you to get a few quotes form lenders and choose the best available deal.

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Michele Lerner
Authored By: Michele Lerner
The Mortgage Reports contributor
Michele Lerner, author of New Home 101, is an award-winning freelance journalist with more than two decades of experience. Her work appears in The Washington Post, New Home Source, Fox Business, MSN, Yahoo, Realtor.com, and more.