USDA home loans under the USDA Rural Development Guaranteed Housing Loan Program are one of the few true zero-down-payment mortgages on the market, available to individuals who want to buy homes in eligible rural and suburban areas of the United States. These loans, which are primarily designed for low- to moderate-income homebuyers who may not be able to qualify for a traditional mortgage, have helped hundreds of thousands of American families to buy and even upgrade their homes.
Of course, USDA home loans are just one of many loan options available to homebuyers in the United States. To help you determine whether this mortgage option is for you, here are 4 fast facts you need to know about this home loan program.
There are 3 Types of USDA Home Loan Programs
The Department of Agriculture offers 3 home loan programs:
- Loan Guarantees - The USDA backs a mortgage issued by a lender in the same way as VA loans and FHA loans. This allows borrowers to avail of low mortgage interest rates and zero down. You will, however, have to pay a mortgage insurance fee.
- Home Improvement/Repair Grants and Loans - These loans are financial awards provided to homeowners so they can make repairs or upgrades to their homes and improve their quality of life.
Requirements for a USDA-Backed Loan Guarantee
Income thresholds for qualifying USDA home loan borrowers will vary by county and household size. You can find the specific limits for your county using the USDA limit map and table. In addition, USDA home loans are only applicable to owner-occupied primary residences.
Other requirements for borrowers include:
- S. citizenship or permanent resident status
- Monthly mortgage payments that are 29 percent or less of the borrower’s monthly income. The USDA, however, will consider higher debt-to-income ratios for those with a credit score over 680.
- A stable income history of at least 24 months
- A stable credit history with no accounts forward to collections within the last 12 months
‘Rural’ Is Not What You Think
While the “rural” name can make it sound like you can only use these loans to buy farms or property in small towns in the middle of nowhere, this is not the case at all. While metropolitan areas are normally excluded from the USDA home loan program, it’s very possible to buy properties in suburbs located in the outskirts of cities. In fact, the United States is so huge, 90 percent of our total land area is a USDA-eligible location.
Good Credit Encouraged, but Not Required
In exchange for not requiring any down payment, USDA home loans require borrowers to have slightly higher credit scores, usually at least 640. If you have a lower credit score, you can still qualify for a USDA home loan, but under stricter underwriting standards. Even individuals without a credit score or with a limited credit history can use other credit references, such as records of paying utilities and rent.
What Now?
The next step is to talk to a local lender about their underwriting standards for USDA home loan borrowers. You may also get in touch with mortgage advisor Chris Lammto learn more about the USDA home loan program and whether you can qualify for a mortgage.