What is a USDA mortgage?
Is a USDA Mortgage right for you?
Is a USDA Loan right for you?
USDA loans help make purchasing a home more affordable for those living in rural areas. The U.S. Department of Agriculture backs USDA loans in the same way the Department of Veterans Affairs backs VA loans for veterans and their families. This government backing means that, compared to conventional loans, mortgage lenders can offer lower interest rates. If you qualify, you can buy a home with no down payment, although you’ll still need to pay closing costs.
97% of the US map is eligible for USDA loans. Any area with a population of 20,000 or less can be eligible (and 35,000 in special cases).
The website of the U.S. Department of Agriculture lists eligible USDA communities by census tract. You are required to provide a home’s exact address. The website will show whether that home meets program guidelines.
Do You Qualify?
- You must be a U.S. resident, non-citizen national or qualified alien.
- Homes financed by a USDA loan must be in an eligible rural or suburban area.
- USDA loans are for families who demonstrate economic need, so your adjusted gross income can’t be more than 110% of the area median income
- You must show that you have a dependable income (typically for a minimum of 24 months) and can make your mortgage payments without incident for at least 12 months based on your assets, savings and current income.
- It’s best for your debt-to-income ratio (DTI) to be 50% or lower. You can calculate your DTI by dividing all of your monthly recurring debts by your gross monthly income. Your monthly expenses should include rent, student and auto loan payments, credit card payments; you don’t need to include expenses for food and utilities.
- You’ll probably need a credit score of 580 or better.
- No down payment option (100% financing). This makes a USDA mortgage a good option for people who can’t afford an FHA loan, which requires a 3.5 percent down payment.
- No cash reserves are required.
- Flexible credit and qualifying guidelines.
- The seller can pay closing costs.
- Rates for USDA loans are generally lower than comparable, 30-year fixed-rate mortgages. Even if you have less-than-stellar credit, you may still get a lower rate with a USDA loan because the agency promises to reimburse the lender should you default and allow a foreclosure.
- There’s no prepayment penalty.
- You can finance repairs and closing costs into the loan.
Ready to Start?
Let’s get you pre-qualified, ready for a loan, and finally cleared to close.