top of page
Well Known And Trusted Services Since 1988
Realtor / Broker / MBA
Mark K. Hicks
BRE# 01228710 / MLO# 1821446
USDA Loan Overview: Rural Home Financing
Category
Details
What is a USDA Loan?
A USDA loan is a government-backed mortgage loan program offered by the U.S. Department of Agriculture. It is designed to help low-to-moderate-income buyers purchase homes in eligible rural and suburban areas with no down payment. USDA loans are issued by approved lenders but guaranteed by the USDA.
Advantages of a USDA Loan
No Down Payment
USDA loans offer 100% financing, meaning you don’t need to make a down payment when purchasing a home in an eligible area.
Details
Advantage
No Mortgage Insurance
USDA loans do not require private mortgage insurance (PMI), which reduces your monthly payment compared to conventional loans.
Lower Interest Rates
USDA loans typically offer lower interest rates compared to conventional loans, making them more affordable in the long term.
Flexible Credit Requirements
USDA loans have more flexible credit requirements, often allowing for lower credit scores (as low as 640 in some cases).
Higher Debt-to-Income Ratios
USDA loans can accept higher DTI ratios (up to 41%), making it easier for borrowers to qualify even with existing debt.
Competitive Loan Limits
USDA loan limits are typically higher than FHA loans, depending on the county limits and are more flexible for qualifying borrowers.
USDA Loan Guidelines
Details
Guideline
Credit Score
The USDA typically requires a minimum credit score of 640, though some lenders may accept lower scores in special circumstances.
Down Payment Requirements
No down payment is required for most USDA loans. The loan can cover up to 100% of the home's purchase price
Debt-to-Income (DTI) Ratio
The USDA allows a DTI ratio up to 41%, but some lenders may approve higher ratios with compensating factors.
Mortgage Insurance
USDA loans require Guarantee Fees (similar to PMI), but they are generally lower than typical mortgage insurance costs.
Property Standards
The property must be located in an eligible rural or suburban area as designated by the USDA. It must also meet certain safety and livability standards.
Loan Limits
USDA loan limits vary by location and are based on median income levels and the area’s population size. Limits generally range between $250,000 to $600,000.
Primary Residence Requirement
The property must be your primary residence. USDA loans cannot be used for second homes or investment properties.
Closing Costs
Closing costs are generally allowed to be rolled into the loan or covered by the seller, depending on the lender's policy.
Is a USDA Loan Right for You?
Best For
USDA loans are ideal for low-to-moderate-income borrowers looking to purchase a home in a rural or suburban area with no down payment
Main Benefits
No down payment, lower interest rates, no mortgage insurance, and higher DTI ratios make USDA loans an excellent option for qualified buyers in eligible areas.
Considerations
You must purchase a home in an eligible rural or suburban area, meet income limits, and ensure the property meets USDA standards.
bottom of page