USDA Mortgage Loans

What they are and what it means to you

A US Department of Agriculture Home Loan from the USDA loan program, also known as the USDA Rural Development Guaranteed Housing Loan Program is a mortgage loan offered to rural property owners by the United States Department of Agriculture.

USDA Property Eligibility

Geographic areas for USDA loans: The home must be located within a USDA-eligible area. The USDA website contains interactive maps with which you can pinpoint an address or take a wider view of a region.

Definition of a rural area: To be eligible, a home must be in a rural area. But you might be surprised at what is considered rural. Generally, cities and towns with a population less than 20,000 qualify, but bigger cities are eligible if they are “rural in character” or don’t have good access to mortgage credit.

Plus, property eligibility maps haven’t been significantly updated in more than 15 years. Many surprisingly populous areas across the U.S. qualify. What was once considered a rural area might now be a significant population center.

Property standards: Your lender will order an appraisal on the property which will ensure it is worth what you’re paying. The appraisal report also verifies the home is livable, safe, and meets USDA’s minimum property requirements. Any safety or livability issues will need to be corrected before loan closing.

Property types: Contrary to popular belief, USDA loans are not meant to finance farms or large acreage properties. Rather, they are geared toward the standard single-family home. You can also finance some condominiums and townhomes with the program.

Occupancy: The home you are buying must be your primary residence, meaning you plan to live there for the foreseeable future. Rental properties, investment properties, and second home purchases are not eligible for the USDA loan program.

USDA home loan map: USDA home loans are available in many suburban areas around the country, often just outside major metropolitan areas.

USDA Buyer Eligibility

The lender will verify USDA rural development loan eligibility in the same way as for any other home loan program. Your credit, income, and bank account information will be compared to current guidelines for USDA loans.

First-time home buyer: You do not need to be a first-time home buyer. However, you may not own an adequate, livable property reasonably close to where you are buying.

USDA income limits: USDA requires an income of 115% or less of your region’s median income. For instance, if your area median income is $50,000, you could make up to $57,500 and still qualify.

Increased limits are available to families of five or more. Check your area’s income limits here.

Keep in mind that the USDA lender will count your entire household income toward limits. For instance, if you have a working teenage son, the lender would factor his income into household income totals, even if he is not on the loan.

Loan limits: There are no stated mortgage limits for USDA loans. Rather, the applicant’s income determines the maximum loan size. The USDA income limits, then, ensure reasonable loan sizes for the program.

Asset limits: If you have 20% down, you may not use USDA financing. According to USDA guidelines, this loan is reserved for those who can’t qualify for other mortgage types, such as conventional loans.

Employment: You typically need a 24-month history of dependable employment to qualify, plus adequate income from said employment. However, schooling in a related field can replace some or all of that experience requirement.
USDA loan debt-to-income ratio (DTI): Current DTI limits are set at 29/41. The definition of debt-to-income ratio is the comparison between your monthly debt payments compared to your gross income. That means 29% of your pre-tax income can go toward the principal, interest, taxes, insurance, and HOA dues on the home you plan to buy. A total of 41% of your income can be used for your proposed house payment plus all other debt.
For USDA, 29% of your pre-tax income can go toward the principal, interest, taxes, insurance, and HOA dues on the home you plan to buy. A total of 41% of your income can be used for your proposed house payment plus all other debt. For instance, if you make $5,000 per month, your house payment can be up to $1,450 and all other debt payments (auto loans, student loans, credit cards, etc.) can equal $600.To sum it up, for every $1,000 in income, $290 can go toward the house and $120 toward other debts.

Citizenship: You must be a U.S. citizen or have permanent resident status, be a non-citizen national or qualified alien to qualify for the USDA program. Valid evidence of residency status will be required.
Direct loan vs guaranteed loan: USDA offers two types of loans: direct and guaranteed. Guaranteed loans are offered by private lenders and backed by USDA. Direct loans have more stringent requirements, like very low-income limits. USDA offices issue these loans directly to consumers.

How do USDA loans work?

  1. Apply: Chances are you can find a lender that offers USDA financing in your town or city. Most lenders in the U.S. can approve USDA home loans.
  2. Get pre-approved: Your lender will look at your income, credit, and employment information. If you meet USDA home loan requirements, you will receive a pre-approval letter.
  3. Find a house: Use your preapproval letter to make an offer on a USDA-eligible home. Make sure the house is in a designated USDA area before making an offer.
  4. Full lender approval: The lender adds property information to your loan file, and does one last check.
  5. Final Signoff by USDA: The lender submits your full loan file to USDA for its seal of approval.
  6. Close the loan: You sign the final paperwork. A few days later, the house is yours.
  7. Move in: You successfully completed your mortgage process. Now, enjoy your home.

USD Loans advantages

  • Lower down payment than conventional or FHA financing
  • Lower mortgage insurance than conventional or FHA loans
  • More lenient credit score requirements than for conventional loans
  • Unlike VA loans, there is no military service requirement
  • The only zero-down loan on the market besides the VA mortgage

For more information visit and