top of page
House Viewing

USDA Loans

A USDA home loan is a competitively priced mortgage option that helps to make purchasing a home more affordable for low-income individuals living in designated rural areas. The U.S. Department of Agriculture backs USDA loans in the same way the Department of Veterans Affairs backs VA loans for eligible individuals such as veterans and their families.

 

This government backing means compared to conventional loans, mortgage lenders can offer lower interest rates in many cases. If you qualify, you can buy a home with no down payment, although you’ll still need to pay closing costs.

1 (2).png

0% Down

These loans are issued by participating lenders in the USDA program, and offer low interest rates and minimal down payments as low as 0%.

Private Mortgage Insurance

All USDA loans come with upfront and annual guarantee fees. Guarantee fees are similar to mortgage insurance and go toward funding the USDA loan program. The annual fee is added to your monthly payment and lasts for the life of the loan. 

​

2 (2).png
4 (2).png

Loan Size

Homes financed by USDA loans must be in eligible rural areas. You can see if a home is eligible by visiting the USDA’s eligibility site to look over a loan eligibility map. This interactive map will allow you to search for a specific property to see if it’s located within a geographic location deemed eligible by the USDA for this type of government-backed financing.

Credit Score & DTI

USDA loans are for families who demonstrate economic need, so your adjusted gross income can’t be more than 115% of the median income in the area. You can find out if your income is eligible in the same place you check property eligibility. Just follow the same link to the USDA’s eligibility site, except choose “Income Eligibility” from the menu.

 

In addition, you must show that you have a stable income and can make your mortgage payments without incident for at least 12 months based on your assets, savings and current income.

 

Your mortgage lender will also look at your debt-to-income (DTI) ratio when they consider you for a USDA loan. To give yourself the best chance of qualification, we generally recommend a DTI of 43% or lower.

3 (2).png

How Do USDA Loans Compare To Conventional Loans?

A USDA loan and a conventional loan are both a kind of mortgage you get to finance a home. “Conventional” just means a type of mortgage that isn’t backed by the government as opposed to other nonconforming loans such as FHA and VA loans.

 

You pay them all back the same way – in monthly payments with interest. But USDA loans, like other government loans, are different in a few ways.

​

Down Payment

Coming up with enough cash to close on a home – your down payment and closing costs – is one of the biggest hurdles many people face. It’s possible to get a conventional loan with much less than the traditional 20% down payment.

 

But there are only two major types of home loans that offer zero-down financing to those who qualify: USDA and VA loans. If you don’t meet the VA’s military service guidelines, a USDA loan may be an option for you. Then you’ll only need to save for closing costs.

​

Guarantee Fee

All USDA loans come with upfront and annual guarantee fees. Guarantee fees are similar to mortgage insurance and go toward funding the USDA loan program. The annual fee is added to your monthly payment and lasts for the life of the loan. 

 

When you put more than 20% down on a conventional loan, you don’t have to pay private mortgage insurance (PMI). Mortgage insurance makes up for a smaller down payment. It’s added to your monthly mortgage payment until you’ve paid off a certain amount of your loan, typically 20%. 

​

Appraisals

Both USDA loans and conventional loans require an appraisal by an independent third-party before approving the loan, but they have slightly different purposes.

 

For a conventional loan, the appraisal makes sure the loan amount is appropriate for the home’s value. If a conventional lender issues you a loan that’s greater than the property value, they can’t recoup their losses from the price of the physical property. If you want a report on the condition of the home and potential issues like the condition of the roof, appliances, etc., you hire a home inspector.

 

An appraisal for a USDA loan does the following:

  • Like an appraisal for a conventional loan, it checks to see that the value of the home is appropriate for the loan amount.

  • It makes sure the condition of the home meets USDA standards. That means it must be in basic livable condition to qualify. Things like the roof and heating systems must work and be up to code. It can’t have broken windows. The appraiser will look for insect damage, and check that the well and septic systems meet USDA guidelines.

If you want a more in-depth report on what you’re buying, you should still hire a home inspector.

​

The Bottom Line On USDA Loans 

USDA loans help make purchasing a home more affordable for those living in qualifying rural areas. Though you'll still pay closing costs, if you qualify, you'll likely get a lower interest rate and won’t be required to make a down payment. You can do a preliminary check on the USDA eligibility site to see if the address of a home you’re interested in and your income qualifies, but it’s always best to let an expert help you understand your mortgage options. 

 

While we don’t offer USDA loans, Rocket Mortgage can help you find the best option to fit your situation. Whether you’re looking for a mortgage or searching for other loan options, start your approval to find the right financing for your new home. 

​

USDA Loans offer flexible options as either Fixed Rate or Adjustable Rate mortgages. You may qualify with less than perfect credit. Buying a home with little or no down payment can provide opportunities for buyers that otherwise may not be able to become homeowners. Fortunately for today’s buyers, there are a few programs that can help them qualify for a mortgage with a very small down payment. One that is not widely discussed is the USDA Single Family Housing Guaranteed Loan Program.

What is a USDA home loan?

The United States Department of Agriculture, USDA, administers the program but does not actually loan money. Similar to loans backed by the Department of Veterans Affairs, VA, or Federal Housing Administration, FHA, these loans are guaranteed by the USDA. Private lenders, such as banks or credit unions, still loan money to the home buyer but they know that the USDA will pay if the borrower is unable.

This allows lenders to assume less risk, and as a result they are okay requiring less money down.

Who can use the USDA program?

Contrary to its name, the USDA loan is not only available for those in an agricultural setting. The USDA loan is designed to help “low and moderate income households the opportunity to own adequate, modest, decent, safe and sanitary dwellings as their primary residence in eligible rural areas.”

To use the USDA loan, applicants must meet income requirements and be purchasing a home for their own primary use in an eligible area. Potential homeowners can look up each property’s address to see if it qualifies or talk to a lender about using a USDA loan in their area. The loan can be used for new homes, existing homes, and even homes that need some renovations.

If coming up with a sizable down payment is holding you back from your dreams of home ownership, the USDA loan may be just the answer you are looking for.

How USDA Loans Work

  • Purchase your home with as little as 0% down payment.

  • 30-, 25-, 20- and 15-year terms are all available with fixed rates.

  • 5-year adjustable rate mortgage available.

  • No monthly PMI (Private Mortgage Insurance).

  • USDA loans are governed by the U.S. Department of Agriculture.

  • Pay your mortgage off at any time without pre-payment penalties.

Qualification Requirements

  • Household income limits apply and are based on location.

  • Only available in certain areas. Talk to a specialist today to see if it is an option for you!

  • Buy a home with no money down (primary home).

  • Refinance up to 100% of your primary home’s value.

Have questions?  Give us a call! One of our mortgage specialists would be happy to answer all of your questions.

**Wellfleet Mortgage Group is not affiliated with or acting on behalf of or at the direction of FHA, VA, USDA or the Federal Government.

bottom of page