The U.S. Department of Agriculture mortgage program might have one of the government’s least-known mortgage assistance programs: their USDA Loan. A USDA home loan is a zero down payment mortgage for eligible rural and suburban home-buyers. They are issued through the USDA loan program, or the USDA Rural Development Guaranteed Housing Loan Program, by the United States Department of Agriculture. In 2017, as a part of its Rural Development program, the USDA helped approximately 127,000 families buy and upgrade their homes. The goal of the program is to improve the economy as well as quality of life in rural America, offering low interest rates and no down payments for eligible properties.
How they work
There are three USDA home loan programs:
Loan guarantees: The USDA guarantees a loan that is issued by a participating local lender — similar to an FHA loan and VA-backed loans — and allows you to get low interest rates, even without a down payment. If you only put a small amount 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-income applicants. Income thresholds vary by region and interest rates can be as low as 1%.
Home improvement loans and grants: These permit homeowners to repair or upgrade their homes. Packages may also combine a loan and a grant, providing up to $27,000 in assistance.
Income limits to qualify for a USDA home loan varies by location and depends on the household size. To find the loan guarantee income limit for the county where you live, contact us for clarification.
USDA guaranteed home loans can fund only owner-occupied primary residences. Other eligibility requirements include:
- must be a U.S. citizen (or have permanent residency)
- monthly payment — including principal, interest, insurance, and applicable taxes — 29% or less of your monthly income. Other monthly debt payments you make cannot exceed 41% of your income. However, if you have a credit score above 680, the USDA will consider higher debt ratios.
- dependable income, typically for a minimum of 2 years
- acceptable credit history, with no accounts converted to collections within the last year, among other criteria. If you can prove that your credit was affected by temporary circumstances or from factors outside of your control, such as a medical emergency, you may still qualify.
- applicants with credit scores of 640 or higher may receive streamlined processing. Those with scores below 640 must meet a list of more stringent underwriting standards. Those without a credit score, or a limited credit history, can qualify with “non-traditional” credit references, such as documents showing rental or utility payment histories.