A USDA home loan is a zero down payment mortgage for eligible rural and suburban
homebuyers. USDA loans are issued through the USDA loan program, also known as the
USDA Rural Development Guaranteed Housing Loan Program, by the United States
Department of Agriculture.
In 2017, as a part of its Rural Development program, the USDA helped some 127,000 families
buy and upgrade their homes. The program is designed to “improve the economy and quality of
life in rural America.” It offers low interest rates and no down payments, and you may be
surprised to find just how accessible it is.
» Learn how to improve your credit score
With all types of mortgage loans to choose from, how do you know whether a USDA loan
is right for you? Here’s an overview of how it works and who qualifies:
Loan guarantees: The USDA guarantees a mortgage issued by a participating local lender —
similar to an FHA loan and VA-backed loans — allowing you to get low mortgage interest rates,
even without a down payment. If you put little or no money down, you will have to pay a
mortgage insurance premium, though.
Direct loans: Issued by the USDA, these mortgages are for low- and very low-income
applicants. Income thresholds vary by region. With subsidies, interest rates can be as low as
Home improvement loans and grants: These loans or outright financial awards permit
homeowners to repair or upgrade their homes. Packages can also combine a loan and a grant,
providing up to $27,500 in assistance.
Qualifying for a USDA-backed mortgage guarantee
Income limits to qualify for a home loan guarantee vary by location and depend on household
size. To find the loan guarantee income limit for the county where you live, consult this USDA
map and table. USDA guaranteed home loans can fund only owner-occupied primary
Other eligibility requirements include:
U.S. citizenship (or permanent residency)
A monthly payment — including principal, interest, insurance and taxes — that’s 29% or
less of your monthly income. Other monthly debt payments you make cannot exceed 41%
of your income. However, the USDA will consider higher debt ratios if you have a credit
score above 680.
Dependable income, typically for a minimum of 24 months
An acceptable credit history, with no accounts converted to collections within the last 12
months, among other criteria. If you can prove that your credit was affected by
circumstances that were temporary or outside of your control, including a medical
emergency, you may still qualify.
Applicants with credit scores of 640 or higher receive streamlined processing. Below that,
you must meet more stringent underwriting standards. You can also qualify with a
nontraditional credit history.
Applicants with credit scores of 640 or higher receive streamlined processing. Those with
scores below that must meet more stringent underwriting standards. And those without a credit
score, or a limited credit history, can qualify with “nontraditional” credit references, such as
rental and utility payment histories.
» MORE: Get preapproved for your USDA home loan
How USDA-issued home loans work
Going one step further in helping prospective home-buyers, the USDA issues mortgages to
applicants deemed to have the greatest need.
That means an individual or family that:
Is without “decent, safe and sanitary housing”
Is unable to secure a home loan from traditional sources
Has an adjusted income at or below the low-income limit for the area where they live
The USDA usually issues direct loans for homes of 2,000 square feet or less, with a market
value below the area loan limit. Again, that’s a moving target depending on where you live.
Home loans can be as high as $500,000 or more in pricey real estate markets like California
and Hawaii, and as low as just over $100,000 in parts of rural America.
MOST FREQUENTLY ASKED QUESTIONS ABOUT USDA HOME LOANS
A USDA loan (also called a Rural Development Loan) is a government insured home loan that
allows you purchase a home with NO Money Down. USDA Home Loans offer 100% financing
to qualified buyers and allow for all closing costs to be either paid for by the seller or financed
into the loan. USDA offers some the lowest rates of any loan, and you will always have a fixed
Q: What is a USDA loan?
A: USDA loan is a loan program insured by the Federal Government (US Department of
Agriculture) and is designed to help those families that desire to own a home in small
communities or in rural areas.
Q: What kind of credit do I need to have to qualify for a USDA loan? Can I qualify for a
USDA loan with bad credit?
A: Credit history must indicate a reasonable ability and willingness to meet obligations as they
become due. The following are indications of unacceptable credit history and must be carefully
investigated. If loan approved through GUS, the guidelines below are not required to be met.
More than one payment being more than 30 days late in the last 12 mos.
A foreclosure or bankruptcy in the past 36 months.
A judgment in the last 12 months.
Outstanding tax liens, no matter what their age, that are currently delinquent.
Two or more rent payment paid 30 days or more past due.
Outstanding collection accounts, no matter what their age, that are currently delinquent.
Previous RHS debt or non-RHS debt that resulted in a loss.
Any outstanding judgment obtained by the United States in a federal court (other than a
Q: How much do I have to put down for a USDA loan?:
A: Loan terms include 100% financing, however there are closing costs associated with the
loan. In most instances the seller can or will pay the part or all of the closing costs. When a
seller will not pay the costs and the home appraises for more than the purchase price then the
costs can be financed into the loan (not to exceed the appraised value). This means that
technically a buyer can purchase a home with absolutely no money of their own.
Q: Can I get cash back at Closing on a USDA loan?
A: The borrowers may not receive any cash back at closing, other than the documented
amount representing costs paid in advance by the borrower from their personal funds (i.e.,
earnest money deposit, appraisal, credit report fees). Tax pro-rations may not be given to the
borrowers in the form of cash back at closing. Any tax pro-rations resulting in cash back to the
borrower must be applied as a principal reduction. The same applies to any excess funds
remaining from seller paid concessions.
Q: What areas are eligible for USDA loans?
A: Most rural areas qualify for USDA financing. There are however many areas just outside
major metropolitan areas that will qualify as well. These outlying areas are still considered small
Q: Are co-borrowers allowed on a USDA loan?
A: The maximum number of borrowers allowed on a single transaction is four. Income from all
borrowers and non-borrowers occupying the subject property must be considered when
calculating qualifying income.
Q: How long after a bankruptcy can someone qualify for a USDA loan?
Generally bankruptcies are not allowed within the last 36 months.
Q: Do I have to pay off collection accounts when qualifying for a USDA loan?
A: Applicants are expected to demonstrate a reasonable ability and willingness to meet
obligations as they come due. It is the underwriter’s responsibility to determine what collection
accounts, if any, should be paid in full by the applicant prior to or at closing, and based on the
strength of the credit profile. Evidence of meaningful financial reserves and if the account(s)
have the potential to affect the lien position or diminish the borrower’s equity must be
considered. The underwriting decision must be fully documented on the underwriting analysis.
Q: Are USDA Loans, or Rural Development Loans, only available for low income
A: There are income limits for USDA Loan borrowers. However, these income limits are set to
accommodate low-to-moderate income levels. These income limitations are based on family
size, and vary by State and County. In most cases, applicants for the loans may have an
income of up to 115% of the median income for the area. To find out what the Maximum USDA
Loan income limits are for your area, contact the USDA Loan Agency, or fill out the contact form
on this page.
Q: What is the difference between a USDA Loan and a Rural Development Loan?:
A: There is no difference between a USDA Loan and a Rural Development Loan. The terms
can be used interchangeably. Both USDA Loans and Rural Development Loans refer to the
government guaranteed loan program that lets you borrow up to 100% of your home’s value –
Meaning no down payment is required. Benefits of these USDA Rural Development Loans
No Money Down
No Monthly Mortgage Insurance
All Closing Costs Included in Loan
Relaxed Underwriting Guidelines
NO Maximum Loan Amount
NO assets needed to qualify
Flexible Credit Guidelines
Competitive, Fixed Interest Rates
Q: Who Is Eligible for a USDA Loan?:
A: Any individual or family purchasing their primary residence in a qualifying rural area may be
eligible for a USDA Home Loan. These qualifying areas are generally defined as being outside
the city limits or consisting of a population of 20,000 people or less.
USDA Loan Eligibility Guidelines To qualify for a USDA Loan, the prospective borrower must
show proper legal capacity to own property in the U.S.A and meet or fall beneath the income
Monthly housing costs must meet a specified percentage of gross monthly income
Credit history must indicate an ability to meet financial obligations
The borrower cannot currently own a home
Individuals must have insufficient resources to qualify for a conventional home mortgage
Q: What is the maximum amount that I can borrow with a USDA Guaranteed Loan?:
A: There is no set maximum amount for a USDA Rural Development Loan. However, the total
amount a person can borrow depends on a number of factors, including:
Value of Home
Debt to Income Ratio
In most cases, the maximum amount available for a USDA Loan will be equal to 100% of the
appraised value of the home. Because the eligibility requirements for a USDA Loan depend on
a number of specific factors, including the county where the home is located, your current
income and your credit history, it is important to work with a certified USDA Loan agent who
understands your needs. For the answers to your questions, contact the USDA Loan Agency
Q: What types of property can be purchased with USDA Home Loans?:
A: When an individual or family is seeking a USDA Home Loan, the property must be used as
the primary residence. A Rural Development Loan may be used in the purchasing of:
Planned unit developments
Single family residences
Other Factors to Consider When Seeking a USDA Home Loan
Both new and existing homes are eligible. In addition, there is no restriction placed on the
design, size or layout of the home. The prospective property, however, must be declared as
safe, sound and sanitary, meeting all the necessary building requirements in the area.
Q: Are there any associated upfront costs with a USDA Loan?:
A: The terms of your USDA Loan include 100% financing, with no required down payment.
However, just like a traditional loan, there are associated closing costs. To cover the closing
costs on your USDA Loan, you can choose to:
Pay all or part of the closing costs upfront
Roll the closing costs into the overall loan.
Take note that only the difference between the agreed upon contract price and the appraised
value of the home can be used to finance the closing costs when seeking a USDA Mortgage. In
other words, your USDA Home loan will not cover more than the appraised value of the
Q: What is PMI and Does My USDA Loan Require it?:
A: PMI stands for Private Mortgage Insurance. For traditional mortgages - the lender will
require homebuyers who are financing more than 80 percent of their home’s appraised value to
purchase PMI. In a basic sense, buyers who do not put down at least 20 percent are required
to pay PMI on a traditional mortgage. The benefits of PMI for a traditional mortgage are two-
It protects the lender in the event that the borrower defaults on the loan
It enables homebuyers to purchase property with less available cash USDA Loans Do
Require a Small Amount of Mortgage Insurance
When seeking a USDA Home Loan, or Rural Development Home, a small mortgage insurance
is required. The insurance is much less than other loans offered. For a USDA Loan the monthly
mortgage insurance is 4%. With low monthly mortgage insurance costs, the overall monthly
payments on these Rural Development loans are often lower when compared to a traditional
Q: What Kind of Loan is a USDA Loan?:
A: USDA Loans are only offered as a fixed-rate mortgage. This means that the interest remains
the same throughout the entire life of the loan. Unlike a variable rate loan, the monthly
payments on a USDA Home loan will always remain the same, allowing for easier planning and
budgeting. The interest rates on the loan are determined by market rates and can vary based
on region or state. The payments can be spread out over a period of 33 years and typically are
calculated based on a 30 year period, with payments being made on a monthly basis.
Q: What is the loan process for a USDA Loan like?: The process involved with a USDA
Loan, at least from the buyer’s perspective, is similar to that of a traditional mortgage or FHA
mortgage. From the beginning application to the approval, the timeline can take somewhere
from two weeks to 30 days. The major difference between a Rural Development or USDA loan
and a traditional loan is that it must be approved by the state’s USDA representing office. For
the borrower, however, this process goes virtually unnoticed, with the USDA agent taking care
of most, if not all, of the necessary paperwork. After final approval by the state’s USDA office,
which typically takes around two weeks, the borrower will be notified and the paperwork can be
Q: What are some of the highlights of the USDA Home Loans Program?: Thinking about
apply for one the government backed USDA Loans? The following are a few highlights of the
USDA Guaranteed Rural Housing Loan Program: USDA Loan Value: Loans may be for up to
100 percent (102 percent if the guarantee fee is included in the loan) of appraised value or for
Benefits: No down payment; Mortgages are 30-year fixed rate at market interest rates
Closing Costs and Legal Fees: Loans may include funds for closing costs, the guarantee fee,
legal fees, title services, cost of establishing an escrow account and other prepaid items, if the
appraised value is higher than sales price
Application Process: Home buyers make USDA Loan applications with participating lenders
Living Restrictions: Buyers must personally occupy the dwelling following the purchase
Loan Fees: For purchase loans, a one-time guarantee fee equal to 2.0 percent of the loan
amount is charged to the lender. The charge for refinance loans is 0.5 percent. Typically,
the lender passes on this expense to the borrower as a closing cost. After the one-time fee
is paid, there is no recurring monthly expense charged for guaranteeing the loan
Never assume that you do not qualify for a USDA Home Loan. Instead, contact the
experts at 1st Florida Lending. Our certified loan agents will quickly identify your needs,
and offer you the type of expert advice you deserve