Thinking about applying for a USDA mortgage? You'd better hurry. The USDA is updating its maps and beginning this fall, and a lot of areas will be losing their eligibility for these loans.

That's too bad, because USDA mortgages are one of the best deals around for borrowers of modest means who can't qualify for a VA loan. They offer 100 percent financing, with no down payment required, and no mortgage insurance requirement aside from a small fee upfront that can be rolled into the loan itself. Mortgage rates are comparable to those on conventional loans.

Changing what is considered "rural"

What's changing is that USDA is updating its maps that define what areas are considered rural, based on 2010 Census information. When that happens, a lot of suburbs, small towns and subdivisions that are currently considered rural will lose that designation - and their eligibility for USDA mortgages in the process.

The current maps expire on Sept. 30. When they do, it's estimated that nearly 8 million people will be disqualified for USDA mortgages based on where they live, according to figures from the Housing Assistance Council.

The USDA Rural Development Loan program was established for exactly that reason - to enable farmers and other persons living in rural areas obtain affordable mortgages to buy decent housing. But the definition of "rural" includes many small communities as well - among them onetime "farm towns" that have become bedroom communities and growing suburbs that have sprung up in former agricultural areas.

In fact, it's estimated that 97 percent of the land in the U.S. is currently considered rural by USDA standards and therefore eligible for the loan program. So it's not like the program is overly restricted in that sense.

General program requirements

As mentioned above, the program is limited to persons of moderate incomes, although that is defined as 115 percent of your local median income, adjusted for family size. You also need to currently be without adequate housing, although that might be sharing an apartment with multiple roommates or living in a home where several children must share a room.

There's no fixed limit on the cost of the home you can buy, though the program requires that it be "modest in size, design and cost." In other words, no in-ground swimming pool. You also need to have a "reasonable" credit history, which in practical terms means a credit score of at least 620, though that may vary by lender.

Not all lenders provide USDA loans, although you're more likely to find them in smaller communities where the program is popular. Some will advertise that the offer USDA loans, often along with FHA, VA and other products, or you can contact a Rural Development office in your state to obtain the names of participating lenders in your area.

For more information, including maps of eligible areas, visit the USDA Rural Development web site.

Published on July 30, 2014