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What Is a USDA Home Loan?

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A USDA loan is special type of a zero down payment mortgage that eligible home buyers in rural and suburban areas can get through the USDA Loan Program, which is backed by the United States Department of Agriculture (USDA). It’s one of the government’s least-known mortgage assistance programs available.

The main type of USDA home loan program is called a USDA Guarantee Loan. These loans work like how an FHA or VA home loan would in terms of low or no down payment. Keep in mind, you may be required to pay private mortgage insurance each month. A USDA-approved lender, like Churchill Mortgage, issues this type of loan.

Jordan Heatherly, a Nashville-based home loan specialist with Churchill Mortgage, says the USDA mortgage beats the FHA loan. He says, “I believe it’s a better product than an FHA loan for a first-time home buyer. While there are similarities, consider that the fees charged on a USDA loan are less. Both have upfront fees added to the loan — 1.75% for FHA versus 1% for USDA — and monthly mortgage insurance fees regardless of the down payment amount. But it’s smart to check with a loan officer to confirm before making a decision.”

“DPA programs vary in their requirements and the amount of financial help given, but they are programs designed to aid primarily first-time buyers purchase a home with less money out of pocket,” notes Heatherly.

Applying for a USDA Loan

Applicants for a USDA Home Loan must*:

  • Meet income eligibility
  • Agree to personally occupy the dwelling as their primary residence
  • Be a U.S. citizen, U.S. non-citizen national or qualified alien
  • Have the legal capacity to incur the loan obligation
  • Have a credit score of 640 or higher, though lower scores may still qualify with additional requirements
  • Have not been suspended or debarred from participation in federal programs
  • Have a debt-to-income (DTI) ratio below 41%, though exceptions may be made
  • Demonstrate the willingness to meet credit obligations in a timely manner
  • Purchase a property that meets all program criteria
Is a USDA Loan Right for You?

If you live (or are looking for a home) in a metropolitan area, a USDA loan is not for you. There are some suburbs that have USDA loan opportunities, but most of these loans are for homes in rural areas. This doesn’t mean you have to live on a farm or be a farmer. It does mean that you have to meet specific income and location requirements.

If you’re interested in applying for a USDA-backed home loan, reach out to one of our Home Loan Specialists.

Information about this loan program may be subject to change. Consult with your Home Loan Specialist or contact your local USDA Service Center for information about this loan program. 

Source: *https://www.usdaloans.com/program/

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