Where can I use a USDA loan?
Life in the country is a day-dream to many. But it could be a reality for you! A USDA loan, one of the government's least-known mortgage assistance programs, could get you there!
The U.S. Department of Agriculture is helping make home buying a possibility for low- to moderate-income families with the bonus that an influx of new homeowners will help rural communities revive and/or continue to thrive.
Since 2017, the USDA loan program has helped participants buy and upgrade their homes by offering low interest rates and no down payments. Overall, these loans are reserved for homebuyers looking to live in rural areas of the country, but in some states, suburban areas may also be included.
Are you eligible for a USDA loan?
Don't pass up the opportunity to learn more about USDA thinking it's not for you. Eligibility requirements for USDA-backed mortgages are based on just two things. The USDA home loan requirements are:
- Location: To get a USDA home loan, the property you buy must be in a USDA designated rural area. That sounds like it's all fields and farmland, but don't be fooled: 97% of the country is eligible, including small towns and some suburbs.
- Income: Originally designed for low- to moderate-income earners, the USDA loan guidelines define income level as being up to 115% of the median income for the region you're looking to live in. That can be a lot of money in many parts of the country, but it depends where you want to buy. Additionally, a household's entire income is considered during the application process, which helps increase eligibility.
Where to look for eligible USDA Loan properties
The USDA home loan map helps you figure out where you can find an eligible property. Knowing which homes or areas qualify will protect you from making an offer on a home that's not going to be acceptable in the long run.
In a nutshell, urban areas are excluded from USDA programs, but some suburban and ex-urban locations get you pretty close to the buzz of some smaller cities. The map will help you ferret these areas out. But if you're looking for the country life, you're in luck. Rural locations are always eligible. Check out our recent blog post to weigh the pros and cons of living in the city vs. the country.
Luckily, the USDA map site is relatively simple to use and only takes a few clicks to find what you're looking for. These tips below will help make the process easier:
- Once on the site, click on “Single Family Housing Guaranteed” and accept the disclaimer.
- Search for a specific address and zoom in or out to narrow in on eligible areas.
- Densely populated zones will be tinted yellow, indicating that they're ineligible. Zoom in more, and you may find eligible areas within the yellow zones.
- Once you've identified an eligible area, focus your home search in that specific neighborhood.
Now confirm your eligibility
To be sure you're eligible from an income perspective, remember that Income limits for a home loan guarantee vary by location and size of your household. Remember that to qualify, your household income can't be more than 115% of the median income for the zone you're interested in. Use this chart to see if you qualify.
There are some requirements you need to consider, too. These include:
- You must live in the home full-time. USDA Loans can fund only owner-occupied primary residences.
- You must be a U.S. citizen or have permanent residency.
- Your monthly debt payments must not exceed 41% of your monthly income. However, the USDA will consider higher debt ratios if you have a credit score above 680.
- You must be currently employed, or be self-employed, with a history of dependable income, typically for at least 24 consecutive months.
- You must have a good credit history, with no accounts converted to collections within the last 12 months.
Advantages of a USDA Loan
If you feel you're eligible and looking to make your primary residence in a USDA-eligible zone, then a rural home loan may be the right fit for you. That's good news because USDA loans have many advantages over other mortgage options:
- $0 down payment: Low- to median-income families may find it very difficult to save up enough of a down payment for most loans. Along with V.A. loans, this is one of the few government-backed loans with a zero down payment option.
- Competitive interest rates: Because these loans are backed by the U.S. government, lenders can offer some of the lowest interest rates on the market. Your credit score will still play a role in this.
- Low monthly payments: USDA loans have the lowest funding fee of all government-backed loans. Other loans may require you to pay Private Mortgage Insurance (PMI) if you can't come up with a down payment. But, the USDA loan only requires two fees, both tied to the full loan amount. There's an upfront guarantee fee of 1.0%* and an annual fee of 0.35%* that's incorporated into your monthly payments.
- Flexible Credit: There's no minimum credit score for USDA loans.
- Fixed terms: The USDA loan is available in standard fixed-rate terms like 30-year and 15-year mortgages.
- Ability to buy a second home: While this benefit only applies in certain circumstances, it is possible to own additional property and apply for a USDA loan. Two things to keep in mind:
- A previous USDA loan must not have been used to finance the other property.
- You cannot use the new home for a vacation home or an investment property.
- The home financed by the USDA loan must be your primary residence, meaning you must live in it through the life of the loan.
Before you start
When it comes to USDA loans, you may need help navigating the requirements. But one thing's for sure, you'll want to get pre-approved before you start house hunting. Connect with a Movement Mortgage loan officer in the area you're looking to buy.
*Based on 2020 offering