USDA Loans

Most Common USDA Loans Questions

• What are USDA Loans?

A USDA loan is a zero down payment mortgage for eligible, rural homebuyers. The loan is guaranteed by the U.S. Department of Agriculture.  USDA loans are designed to help low-to-moderate income buyers become homeowners and can bridge some of the obstacles that borrowers face with a conventional home loan. You can use USDA to buy, refinance or renovate a home.

 

• Does USDA have specific eligibility requirements?

In order to be eligible for a USDA loan, a borrower needs to meet established low-to-moderate income limits. (USDA Map - Income Limits) Additionally, the USDA loan has certain property requirements which include that the property must be owner occupied and must be in a rural or less densely populated areas.

 

• Does USDA have specific loan requirements?

To qualify for a USDA loan, a borrower does not have to be a first-time homebuyer. Borrowers must be US Citizens or eligible non-citizens. Credit requirements may vary for loans originated with the assistance of Guaranteed Underwriting System (GUS) as compared to those that must be manually underwritten.  USDA allows lenders to impose overlays at their discretion. Many lenders implement a minimum credit score of 640. The acceptable housing-to-income ratio is typically 29%.  The acceptable debt-to-income ratio is typically 41%. Ratio waivers up to 32% / 44% may be available based on the borrower’s credit score and certain compensating factors.

 

• Do USDA loans have higher interest rates?

USDA loans typically offer lower rates than a conventional loan. This is because USDA loans are guaranteed by the U.S. Department of Agriculture. This guarantee reduces some of the risk associated with mortgage loans.

 

• Does USDA have additional fees and/or costs?

When obtaining a USDA loan, you will be required to pay a one-time fee, known as a USDA Guarantee Fee. This additional financed fee is equal to 1% of the loan. In addition to this fee, you will be required to pay an annual fee of .35% which is included in the monthly payment. The annual fee will decrease each year based on the principal balance owed, however it will remain intact during the life of the loan.

 

• How do you know if USDA is the best loan for me?

USDA can be a great loan for any qualified borrower. However, everyone’s financial situation can be different due to numerous factors. Just because USDA might be the best loan, it may not necessarily be the best loan for you. To ensure you choose the loan that is right for you, it is important to speak with a mortgage professional to discuss your specific situation in detail. Contact me to begin this conversation.