Helpful Mortgage And Real Estate Advice

USDA Home Loans

Family standing outside their home in summer

The United States Department of Agriculture (USDA) mortgage loans are perfect for buyers residing in remote regions. Originally, the purpose of these loans was to help low-to moderate income households. The goal was to aid these buyers in landing an affordable residence with zero down payment, as well as full financing. Eligibility for the USDA mortgage loan is decided by The Rural Development due to income and location specifications.


Eligibility Requirements for USDA Home Loans

The two prime determinants for USDA Home Loans are residency and household income. For example, applicants looking for financing must invest in a home with a town of 25,000 residents or less.

  • Determining eligibility for a USDA Mortgage.
  • An average stable source of cash flow with up to 115% of adjusted area median income.
  • Ineligible for a Conventional Mortgage Loan.
  • Moderate credit history.
  • Zero outstanding government debt including delinquency on tax and no-tax debts.

A two-formula method typically is utilized by The Rural Development when determining buyer eligibility.

  1. Total Debt-to-Income (DTI) monthly must not exceed 41%of the gross monthly income.
  2. Principal, interest rates and insurance (PITI) must be less than 29% of the gross monthly income.

Approved Property Types

The USDA mortgage loan is specifically meant for the primary residence only, and must meet all standard living conditions determined by The Rural Development.

USDA eligible property types are:

  • Townhomes
  • Modular Homes
  • New or existing single-unit residences
  • Approved Condominiums
  • Financing of a new manufactured home

USDA home loans are not meant to be used for existing manufactured home loans unless the residence was financed with another USDA home mortgage loan in the first place. All approved homes must meet building codes and be located in a rural area. Additionally, properties should be of a modest size and design, as well as cost.


USDA Appraisals

Appraisals for a USDA mortgage loan need to meet the USDA’s appraisal guidelines below:

Use of a qualified appraiser – This means the appraiser must be licensed in that state and listed as an approved USDA appraiser in the same territory.
Compliance – Appraisals must abide by the Uniform Standard of Professionals Appraisal Practice.
Third Party Appraisals – Appraisal by a participating lending institution may be accepted by the USDA under special circumstances.
Timeline – The appraisal must be set forth by the loan originator within three business days of the property being approved by the USDA.
Nondiscrimination – Under no circumstances can the buyer’s age, sex, religion, disability, or family be used to determine eligibility at any step in the process.

All properties need to meet building codes and be located in a rural development. Please remember, pools may not allowed onsite. Appraisers will inform buyers of any needed repairs, and ensure everything is functional.

For residential real estate appraisal, the lender is required to use a qualified appraiser. In the event the appraiser does not hold a designation from a professional organization, then the lender will have to obtain prior approval from The Rural Development. It is ideal for the lender to use a HUD-approved/roster appraiser. Additionally, a Fannie Mae/ Freddie Mac form titled: “Market Conditions Addendum to the Appraisal Report” is required.

If a house is infected by any sort of pests at time of inspection, it will not be approved for a USDA mortgage loan. For this reason, both a foundation and crawl space inspection will be required. A termite inspection should also be included in this series to further explore any additional areas of damage.

Not only should an infestation investigation be completed, but an inspection will be conducted to check for foundation dampness, mold and mildew. This goes hand-in-hand with plumbing, mechanical, and electrical systems.


Credit Requirements

A buyer must have significant finances available that cover both the mortgage requirements, and their own personal expenses.

USDA Credit Score Guidelines:

  • Zero 30-day late dings on your credit score within the past 12 months.
  • A maximum of two delinquent rent payments over the last three years.
  • No tax liens or past due federal debt obligations without payment arrangements.

Since there is no minimum credit score to qualify for the USDA mortgage loan, having zero credit history will not automatically disqualify an individual for financing. Items such as recent utility statements, or a checking account history may suffice for financing.


Co-Borrowers

If needed, Co-Borrowers are accepted for USDA mortgage loans. When a borrower is unable to pay for a loan, it is the co-borrower’s responsibility to make the payments. If a buyer’s income is too low the easiest thing to do is to consider a Co-Signer to help apply for funding.

Basic USDA Co-Borrower requirements:

  • The Co-Borrower will be held legally responsible for past due finances.
  • Co-Borrowers must also occupy the home.
  • Co-Borrowers need to have ample credit to help strengthen your credit worthiness in order to qualify a loan.

Loan companies qualify you by running credit checks and verifying income. They examine credit reports, bank statements, paycheck stubs, and income tax returns. The lender may require a Co-Borrower to take on some of the responsibility for repayment of the loan in the case of default or non-payment.


USDA Closing Costs

Closing costs must be listing in an official settlement form, which is a document required to be completed prior to finalizing the purchase price of a home. These fees are typically paid by the buyer, but may be negotiated with the seller or lender to pay a partial cost.

USDA Closing Costs:

  • Origination, lender, escrow, notary, and title insurance fees.
  • Credit repair costs and title insurance.
  • May be wrapped into the financing and negotiated.

Terms of a new USDA loan include 100% financing with zero down payment due at signing. However, this does not include closing costs that may incur at time of consultation.

USDA mortgage closing include, but are not limited to:

  • Origination fees
  • Lenders fees
  • Escrow fees
  • Credit repair costs
  • Title insurance fees
  • Notary Fees

USDA Home Loans Frequently Asked Questions

What is the down payment required for a USDA Home Loan?

There is zero down payment required to be approved for a USDA mortgage.


Is there a loan limit?

No. Up to 29% of gross income may be spent on housing and when combined with other monthly obligations may equal up to 41% of gross income.


Are there income limits?

The USDA Loan Program income limit is generally based on 115% of the median county income adjusted to family size.

Top