A United States Department of Agriculture (USDA) mortgage is likewise doesn’t require a down payment. Even applicants with a scarred credit history will usually get a USDA loan, as the credit stipulations attached to this type of loan are fairly easy to fulfill. Should you fall below the acceptable threshold, though, you may need to take on a 10% down payment.
To be eligible for a USDA loan, the home must be in a federally recognized and approved rural or semi-rural area. On top of that, if your household income is more than 115% of the area’s median income, you may be eliminated from contention.
USDA Home Loans have Maximum Household Income Limits which vary by the county in which you purchase a home; the income limits change annually. The Maximum Household Income Limits are based upon everyone in the home who is a wage earner, even if their income is not going to be used to qualify for the USDA Loan. For instance, Social Security Income from an elderly relative living in the home would be considered when determining the maximum household income – even if that relative was not going to apply to be on the mortgage loan. There are deductions, however, that USDA Underwriters allow, and oftentimes those calculations will pull a family under the Maximum Household Income Limit.
Approved lenders under the Single Family Housing Guaranteed Loan program include:
Any State housing agency; lenders approved by HUD for submission of applications for Federal Housing Mortgage Insurance or as an issuer of Ginnie Mae mortgage-backed securities; the U.S. Veterans Administration as a qualified mortgagee; Fannie Mae for participation in family mortgage loans; Freddie Mac for participation in family mortgage loans; any FCS (Farm Credit System) institution with direct lending authority; any lender participating in other USDA Rural Development and/or Farm Service Agency guaranteed loan programs
USDA’s Rural Housing Service offers a variety of programs to build or improve housing and essential community facilities in rural areas. We offer loans, grants, and loan guarantees for single- and multifamily housing, child care centers, fire and police stations, hospitals, libraries, nursing homes, schools, first responder vehicles and equipment, housing for farm laborers, and much more.
We also provide technical assistance loans and grants in partnership with non-profit organizations, Indian tribes, state and federal government agencies, and local communities.
We and our partners are working together to ensure that rural America continues to be a great place to live, work and raise a family.
There are three USDA home loan programs:
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 1%.
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.
What Are the USDA Home Loan Requirements?
To qualify for a USDA home loan, the basic requirements are as follows:
- The property must be located in an area that is designated as rural by the USDA (your FedHome Loan Centers Loan Officer can find out if a property is eligible)
- The program is available for purchase transactions only (no investment properties or second homes)
- Available for 1st Time Buyer or Repeat Buyer (Buyer cannot own another home at the time of purchase)
- The entire purchase price (including upfront MI) can be financed (100% financing, no down payment required)
- The minimum credit score for USDA approval is 620. The borrower must have a reasonably good credit history with limited 30-day late payments in the last 12 months. The lender must determine repayment feasibility, using ratios of repayment (gross) income to PITI and to total family debt.
- Buyer income is limited to a maximum of 115% of the area’s median income (contact a FedHome Loan Centers government loan specialist for details to find the income limitations for your area)
- W2 income or self-employed is OK (income and employment must be fully documented)
- Gift of Closing Costs is allowed
- The seller or lender can contribute up to 2.75% of the sales price toward closing costs
- Single-family homes only (no manufactured housing)
- Term: 30-year fixed-rate