What’s a USDA Mortgage Loan and Who’s Eligible for One?

April 1, 2022


USDA Mortgage

USDA mortgages are one of several types of government-backed mortgage loans.

They’re specifically for use on homes in more rural (and often suburban) parts of the country, and they come with a slew of benefits — like no down payment requirements and low interest rates.

Are you thinking about using a USDA mortgage for your upcoming home purchase? Here’s what you need to know.

What is the USDA mortgage program?

The USDA mortgage program offers loans for low- and moderate-income homebuyers in eligible rural and suburban areas.

The loans are guaranteed by the U.S. Department of Agriculture, meaning the USDA will cover some of the lender’s losses if the borrower defaults on their loan. Because this lowers the risk for lenders, they’re often able to offer low interest rates and looser credit guidelines on these mortgages.

Benefits of USDA loans

There are several benefits to using a USDA loan. For one, they require zero down payment. That means your loan can cover 100% of your home’s sale price (so long as it appraises for that amount).

USDA loans also come with low interest rates, and there’s no mortgage insurance required. There is, however, a guarantee fee, which you’ll pay upfront (1%) and annually (0.35% of the loan amount).

Are you eligible for a USDA mortgage?

Before you can even consider using a USDA loan, it’s important to check your area’s eligibility. The USDA offers an eligibility tool online; just enter the address of a property or neighborhood you’re considering, and you’ll see a map indicating the boundaries of any USDA-eligible areas in your region.

Individual lenders set their own credit score minimums for these loans. Generally, you can expect to need at least a 640, though some lenders may have lower or higher minimums.

Additionally, your debt-to-income ratio can’t exceed 41%, meaning all your debts (including your new mortgage payment) can’t take up more than 41% of your monthly income.

Finally, there are also income maximums for USDA borrowers. These are technically 115% of your local, median household income, so the exact number you’ll need to fall under depends on your ZIP code and the number of people in your household. The USDA has a full list of these income thresholds online, or you can use this interactive eligibility tool.

Learn more about USDA loans

Want to learn more about USDA loans? Ready to see if you qualify? Get in touch with a Premier Nationwide Lending office in your area today.

Premier Nationwide Lending is an Equal Housing Opportunity lender. Sponsored by NTFN, Inc. 6201 West Plano Parkway, Suite 100, Plano, TX 75093 | NTFN NMLS 75333.

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