The USDA loan program was created to help low-income borrowers in rural areas of the country become homeowners.
There are many benefits of USDA loans but the biggest is that they provide 100% financing so you can buy a home with no money down.
In this article, we will cover the requirements, guidelines, and eligibility map so you can determine if a USDA loan is the right mortgage option.
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What are USDA Loans?
The USDA guaranteed loan is a 100% financing mortgage for moderate-to-low income homebuyers in eligible rural and suburban areas.
Loans are issued through the USDA Rural Development Guaranteed Housing Loan Program, which was created by the U.S. Department of Agriculture.
USDA loan guarantees: USDA 502 direct loan guarantees a mortgage issued by private lenders. In this way, they are similar to FHA loans.
The Government ensures the mortgages which protect lenders in the event the borrower defaults on the loan. Government-backed loans do have a mortgage insurance premium that will be included in your monthly payment.
There is an upfront guarantee fee that is typically rolled into the loan.
2020 USDA Loan Requirements
USDA Credit Requirements
A 640 FICO score is required to be eligible for the USDA loan program. But lenders look at more than just your credit score when determining if you’re eligible for a mortgage. Negative information on your credit history such as late payments and collections can cause you to be denied even if you meet the minimum credit score requirements.
2020 USDA Credit Requirements
USDA loans are Governed by:
- The Housing Act of 1949 as amended, 7 CFR, Part 3550,
- HB-1-3550 – Direct Single Family Housing Loans Field Office Handbook
USDA Loan Eligibility Map
When you think of rural America you imagine the country. However, almost 97% of the country is eligible for a USDA loan.
Here is the latest USDA eligibility map below. Everything in green is eligible. Those little blue specs are areas that are ineligible.
The current U.S. Department of Agriculture eligibility map shows that rural development loans are available in many areas outside of the major cities.
There is an excellent chance that you are located in a “rural” area of the U.S. and eligible for a USDA rural development loan. 0% down payment makes them great if you’re a first-time homebuyer.
To verify if the home you intend to purchase is eligible, head on to the USDA Eligibility page here. Type the exact address of the house in the search box provided, click “GO,” and the site will show the eligibility status of the house.
USDA Property Eligibility
No Down Payment (100% Financing)
Amongst the several advantages of the USDA program, the ability to put zero-down and get 100% financing is the most significant benefit.
They are one of only two types of mortgage loans that require no down payment, the other being VA loans. These benefits make these loans perfect for first-time home buyers.
Roll Your Closing Costs into the Loan
Closing costs are fees charged by lenders for processing and issuing a loan. On average, these costs can range from 2%-5% of the purchase price.
USDA loans are the only type of mortgage loan that allows a buyer to roll their closing costs into the mortgage. This means you can finance more than 100% of the sales price.
The seller can pay up to 6% of the closing costs.
Low Mortgage Insurance Premiums
USDA mortgages have the lowest mortgage insurance premium of any home loan program besides the VA, which requires no mortgage insurance.
The annual MIP is just 0.30%. When compared to the FHA PMI fee of 0.85%, the savings are substantial.
On a $200,000 home, PMI on an FHA loan is $1700 per year. A $200,000 home, USDA PMI will be just $600 annually, a savings of $1100 per year.
There is a one-time up-front mortgage insurance payment of 1% of the loan amount that is added into the loan.
Borrowers save an average of $100 per month with a USDA home loan over FHA loans because of the reduced mortgage insurance.
USDA Income Limits
USDA loans are for low-to-medium income individuals and families with a total household income that cannot exceed 115% of the area median income (AMI).
For most areas of the county, the income limit for households with 1-4 family members is $75,650 and up to $153,400 in certain high-cost cities.
The maximum debt-to-income ratio for USDA loans is higher than a conventional loan.
You should speak to a lender to determine your eligibility.
Check the income requirements in your county on the USDA website
Because of the strict income limits, there is no USDA loan limit.
USDA Property Eligibility
Properties financed with a USDA loan must:
USDA vs FHA Loans
FHA loans are another type of government-backed home loan that offers a low down payment of 3.5%. Many of the eligibility requirements for the two types of loans are similar, but there are some key differences.
- Credit scores – FHA loans have the lowest credit requirements of any type of mortgage loan. Borrowers with a credit score as low as 500 may qualify with a 10% down payment and just need a 580 credit score with just 3.5% down. USDA loans require a higher score because they offer 100% financing.
- Income limits – USDA financing is only available to low-to-median income borrowers with a household income not exceeding 115% of the median income in the area. FHA loans do not have an income limit, so if your income is too high to qualify for a USDA loan, FHA loans are a great alternative.
USDA Loans vs. FHA Loans
500 with 10% down
10% down with 500 score
No down payment
Up-front MIP payment Monthly MIP payments
Monthly PMI payments
Low-cost area - $331,760
No USDA loan limit
43% - 50% max DTI depending on the lender
43% - 50% max DTI depending on the lender
No income limits
115% of the area median income
In 2012 the USDA launched its streamline refinance program. The streamline refinance is for borrowers with a USDA mortgage loan who have a rate higher than the current interest rate.
- Currently have a USDA home loan
- The borrower must be current on their mortgage
- The refinance should have a net positive (rate or monthly payments must be lowered as a result)
- Cash-out refinancing is not an option
USDA Housing Repair Loans & Grants
The U.S.Department of Agriculture also offers loans to rural homeowners to make improvements, repairs, and modernize their homes.
This program is available to very-low-income borrowers who cannot find loans anywhere else.
USDA grants to low-income elderly homeowners, 62 years of age or older, to remove safety and health hazards.
You must meet these requirements:
- Very-low income less than 50% of the median income in the area
- You must be the owner of the property
- Be able to show usability to receive a loan elsewhere
- Must live in a rural area as defined by the rural housing loan program
- To be eligible for grants you must be at least 62 years of age
How much money can I get?
- $20,000 is the maximum loan amount
- Grants available up to $7,500
- Grant-eligible borrowers can also qualify for a loan totaling a maximum program loan amount of $27,500
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