USDA Home Loan

What is a USDA Home Loan

USDA loans help make purchasing a home more affordable for those living in rural areas. The U.S. Department of Agriculture backs USDA loans in the same way the Department of Veterans Affairs backs VA loans for veterans and their families. This government backing means that, compared to conventional loans, mortgage lenders can offer lower interest rates. If you qualify, you can buy a home with no down payment, although you’ll still need to pay closing costs.

97% of the US map is eligible for USDA loans. Any area with a population of 20,000 or less can be eligible (and 35,000 in special cases).

The website of the U.S. Department of Agriculture lists eligible USDA communities by census tract. You are required to provide a home’s exact address. The website will show whether that home meets program guidelines.

How to Qualify for a USDA Home Loan

  • You must be a U.S. resident, non-citizen national or qualified alien.

  • Homes financed by a USDA loan must be in an eligible rural or suburban area.

  • USDA loans are for families who demonstrate economic need, so your adjusted gross income can’t be more than 115% of the median income in the area

  • You must show that you have a dependable income (typically for a minimum of 24 months) and can make your mortgage payments without incident for at least 12 months based on your assets, savings and current income.

  • It’s best for your debt-to-income ratio ( DTI ) to be 41% or lower. You can calculate your DTI by dividing all of your monthly recurring debts by your gross monthly income. Your monthly expenses should include rent, student and auto loan payments, credit card payments; you don’t need to include expenses for food and utilities.

  • You’ll probably need a credit score of 600 or better.