USDA loans are still a little known mortgage that many buyers still are not aware of. This government-backed home loan offers up to 100% financing for eligible properties nationwide. The USDA Rural Housing not only allows buyers to purchase a home with NO down payment but also comes with many other advantages.
In the post below we will discuss all the important USDA eligibility and loan qualifying criteria along with some of the good and bad. If you have questions, please reach out to us by submitting the short Info Request Form on this page, 7 days a week.
USDA Mortgage: The Good
- Unless you are eligible military, USDA is the only mortgage program today that permits a home purchase with zero down payment.
- USDA also allows for buyers to get their closing costs paid by the home seller, or added into their loan under certain circumstances.
- USDA loan applicants are NOT required to be first time home owners.
- No special hoops to jump through, USDA home inspection and appraisal requirements are the same as the other loan programs today.
- Home buyers are NOT required to have a minimum amount of savings.
- Lower monthly mortgage insurance. USDA requires monthly mortgage insurance costs each month like most home loans where the buyer is putting down less than 20%. The benefit with USDA is the monthly mortgage insurance costs is much less than FHA or conventional loans. Already pre-approved for an FHA loan? Be sure to check into the USDA as well for the cheaper mortgage insurance, it could save you a decent amount of money each month.
- Loan terms are secure 30-year fix terms at low-interest rates.
- No USDA loan amount limits, home buyers qualify based on their income and debt to income ratios.
- Applying for a USDA loan doesn’t require any special education, first time buyer class or down payment assistance since it’s already 100% financing. Buyers can get approved and start home searching all in the same day.
USDA Mortgage: The Bad
- The property to be purchased must be located in a USDA approved area.
- USDA loans have household income limits – please read below for more info.
- Closing time frame – The USDA loan program is unique because the loan files are processed in two stages. First by the lender, bank or broker originating the loan, then the file goes through a final review at the local USDA office. This means that USDA loans can take an extra week or more to close when compared to FHA, VA or Conventional loans.
USDA Rural Housing Eligibility
The USDA mortgage has a few critical eligibility requirements that must be met in order to be approved:
- The actual location of the house – The home you decide to buy must be located in a select rural approved area according to the USDA property map here. You can input the property address and check to see if the house resides in an eligible location. The home can be any single-family, townhome and select FHA approved condo. Mobile homes and manufactured homes are not allowed. If you need assistance finding USDA approved homes in your area, please contact us below.
- The wage & income for the household – The USDA Rural Development mortgage has income limits for the household. More importantly, the income caps apply to all income producers living in the house, even if they are NOT listed on the loan application. USDA limits vary based on the number of members living in the household, number of dependents, elderly and county. Contact us below to discuss this in detail. Read more on income limits here.
USDA Mortgage Guidelines:
USDA rural loans are not different than other mortgage programs, as they all have standard qualifying guidelines that must be met. Let’s discuss the USDA guidelines below:
- Credit Score: USDA lenders will want to see applicants generally have a 620 or greater credit score to be approved. However, a 620 credit score does not guarantee loan acceptance. All lenders have additional requirements in place for applicants that have experienced past financial hardship like foreclosure, short sale or bankruptcy.
- Employment History: Two years of stable income will likely be needed. You are not required to have the same job for two years, just a stable history. Example: Let’s say you have been working as a driver for 4 years. You recently left one delivery company and started working at another. Maybe you even took two weeks off in between. This is perfectly fine. Or maybe you needed to take a month off for hardship reasons, this likely would be okay as well. Self employed borrowers will need two years of tax returns. Any part-time jobs will need two years of stable history to be included.
- A copy of the borrower’s bank statements will be needed during the approval process. Although USDA does not require a min amount of savings, applicants will want to ensure they can document any deposits. Normal weekly, bi-weekly or monthly employment deposits are normal and to be expected.
- Debt to income – Like all other home loan programs, USDA has debt to income ratio limits. Borrowers can read more about this under the USDA eligibility section.