USDA Home Loans

An Attractive Option for Many Home Buyers

What is a USDA Home Loan?

A USDA loan is a mortgage with no down payment requirement for homes located in designated rural and suburban areas. They are the ideal home loan program for lower income borrowers who may not qualify for a traditional mortgage. USDA Mortgages were designed to “improve the economy and quality of life in rural America.” USDA home loans are very attractive due to their low interest rates and no down payment requirement.

About USDA Home Loans

USDA home loans are available in three programs to fit the needs of borrowers:

Loan guarantees: a loan issued by a participating local lender and guaranteed by the USDA — very much like FHA loans and VA loans) — this allows the borrower to enjoy low mortgage interest rates, even without a down payment. (Borrowers who have little or no down payment will be required  to pay a mortgage insurance premium.

Direct loans: mortgages for low- and very low-income applicants that are issued by the USDA. Physical location (city, state, etc) dictate income thresholds.

Home improvement loans and grants: Program helping homeowners repair or upgrade their homes via loan or financial award. Also, a package may be made up of a combination of both a loan and a grant which may provide up to $27,500.

To Qualify for a USDA-backed mortgage guarantee

Factors such as household size and geographic region vary in determining income limits for home loan guarantee qualification. Please refer to the USDA’s map and table to find the appropriate income limit for you.

In order to receive funding via a USDA guaranteed home loan the property in question must be an owner-occupied primary residence. In addition, the USDA has other requirements including:

  • United States citizenship or permanent resident status
  • A monthly payment (principal, interest, taxes & insurance) that doesn’t exceed 29% of monthly income. In addition, other monthly debt payments and obligations may not exceed 41% of income. The USDA will however review higher debt ratios if credit score is higher than 680.
  • Typically a 24 month history of dependable income.
  • A satisfactory credit history which considers many factors and shows no collections accounts in the past 12 months. (Extenuating circumstances outside of borrowers control such as a medical emergency will be weighed in the decision process)

Streamlined processing will be extended to applicants with credit scores of 640 and higher, otherwise more stringent standards will apply. Nontraditional credit histories will be considered as well for those with a limited credit history or without a credit score via acceptable “nontraditional” credit references (utility payment history, rental payments).

How does a USDA-issued home loan work?

In their goal to serve prospective homebuyers in need of assistance, the USDA seeks to help those identified as in the greatest in need. This includes individuals and families that:

  • Are lacking “decent, safe and sanitary housing”
  • Do not meet the standards for a traditional home loan
  • Has an adjusted income at or below the low-income limit for the area where they live

Typically, the USDA provides home loans for homes under 2,000 sq ft and are below the area loan limit’s market value. As previously mentioned, those thresholds can vary greatly depending on region and their real estate market values.

What areas are eligible for USDA home loans?

By and large, USDA serves rural locations, however there are available suburban locations that also qualify. To see the specific areas designated for USDA eligibility click here.


If you would like any more information about USDA mortgages, please don’t hesitate to contact us.