USDA Loans

What Are USDA Loans?

This might come as a surprise, but the U.S. Department of Agriculture (USDA) finances home loans for properties in rural areas. Sometimes, for as much as 100% financing! USDA loans are great for first-time homebuyers and require no down payment. If the property appraises for higher than its sales price, you may be eligible to finance your closing cost into the loan on top of that. They have a more conservative credit score requirements than FHA and lower Debt-to-Income Ratios and are geared toward people with lower-to-moderate incomes. Meaning that your household income has to be below the median household averages or you’ll not be eligible for qualification.

However, contrary to what most people assume, this home financing instrument doesn’t require you to sequester yourself in a farm and start tending livestock! It just requires you to buy a home in an USDA-eligible area. Some people might consider having to choose such locations a “catch”, but in reality, many of these eligible zones wouldn’t even be considered as “rural” by most. Add to this the possibility to get a zero-down mortgage, and it can become too good an opportunity to let pass.

Already have a USDA loan on your sights? Use our mortgage calculator and make sure it’s the right one for you!

USDA Loans – Notable Requirements:

Different types of loans vary wildly on their qualification requirements.

While these might not be all the requirements to qualify for a USDA loan, they are definitively essential to know up front!

• The USDA requires a credit score of 640 or higher to qualify, but some exceptions may apply (more on this in the next section).
• The house you want to buy must also be eligible as an USDA-approved property, which is mostly determined by its location.
• Borrowers need to demonstrate they can afford mortgage payments by meeting a debt-to-income ratio requirement of 29% for the housing payment.
• There’s an upfront guarantee fee of 1% the loan amount, which you can opt to roll into the loan itself.
• There’s also an annual fee paid in equal monthly installments of 0.35% of the loan amount.
• USDA loans aren’t available to investors.
• The property you are buying must be your primary residence.
• While the program isn’t limited to first-time buyers if you already own a house you need to sell it first and pay off the mortgage in full.

USDA Loans & Accessibility – All You Need to Know:

USDA loans are one of the better alternatives for mortgages with more lenient qualifications. The typical minimum credit score requirement for a USDA loan is 640. That said, if your current rating falls a bit short, you might still become eligible by providing some extra documentation with your payment history.

The USDA tends to give more weight to your credit history than it gives to your credit score. Meaning that, if you are struggling with less than perfect credit scores due to pass mishaps, but the incidences occurred over a year prior, you might still be eligible. Another significant benefit is that, unlike most other low or no-down-payment home loans, USDA’s don’t require mortgage insurance.

Lastly, keep in mind that the final decision for approval rests on the lender purview, not on the USDA. Some lenders might be stricter than others on the minimum credit score requirements, meaning that doing some shopping around to find the right lender for your unique needs might be advantageous.

Ready to get that USDA Loan you’ve been looking for? Let us help!