If you are shopping for a home in a rural area, you may qualify for a USDA loan. This loan offers unique benefits that allow buyers to afford more, while bringing value to the real estate market of the area they now call home.
What is a USDA Loan?
A USDA (United States Department of Agriculture) loan is a zero-down payment mortgage option for those buying a rural area. The USDA guarantees the loan to your lender, allowing you to qualify with less than perfect credit and lower income requirements. If a borrower defaults on a USDA loan, the government insurance protects the lender, which allows them to confidently offer this type of loan.
USDA loans are similar to FHA and VA loans, offering insurance that translates into better terms and more opportunity for the borrower. They are ideally suited for anyone near or below the low-income limit for their region, offering zero down payment options for those with stable employment history, even if you have less than perfect credit and an income that isn’t high enough to qualify for a conventional mortgage.
Who Qualifies for a USDA Loan?
To qualify for a USDA loan, you will need to meet the standards set for the specific region you are considering. Income limits and credit history requirements for USDA loans are often far less stringent than conventional mortgages, as the goal of a USDA mortgage is to assist people who are otherwise unable to qualify for a mortgage.
To find the exact loan guarantee income limit for the county where you live, consult this USDA map or talk with a loan officer and let them know you are interested in a USDA loan in a specific area.
In general, to qualify for a USDA loan, you must:
- Plan to live in the house as your primary residence
- Be a US citizen
- Have a monthly mortgage payment that is less than 29% of your monthly income
- Have at least two years of income history
- Have good credit history, with a score of at least 640. Scores over 680 will allow for a higher DTI (debt-to-income ratio)
What Kind of House Can I Buy with a USDA Loan?
Depending on where you live, the loan limit for a USDA loan will change. In some markets, you may only be able to borrow $200,000, while others will be much higher. Generally speaking, the USDA will issue loans for homes that are 2,000 square feet or less and are below the area loan limit.
Eligible locations exist rarely in suburban markets, but are almost exclusively available in rural regions. If you are interested in living on a farm or ranch, or moving to a more secluded part of California, a USDA loan may be the perfect fit for you.
You don’t need to plan on farming or ranching on the land. Despite being offered by the agriculture department, this program is designed to benefit anyone who want to buy real estate in a rural area.
How Can I Apply?
Though backed and issued by the USDA, these loans are issued by participating lenders. The first step is to contact your lender and ask about pre-approval and USDA loan qualification. They will be able to help you find out whether you are likely to qualify, and what kind of homes will be available to you. We know there are many factors to consider when buying a home, and we are here to help you navigate them all.
To find out more about applying for a USDA loan, talk with one of our loan officers! We would love to help you buy your ideal home.
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