A USDA home loan is a 100% mortgage loan for eligible rural and suburban homebuyers backed by the USDA
To qualify for a USDA 100% loan, you must meet the following:
- You must meet the USDA income requirements
- Must occupy the dwelling as your primary residence
- Purchase a property that is in USDA eligible area
- You must be a U.S. Citizen, U.S. non-citizen national or Qualified Alien
- Must be eligible for federal programs
- The total monthly payment ratio (PITI) principal, interest, taxes, home owners insurance, and USDA annual fee. Must meet the USDA required front end ratio of 29% . The total debt ratio (back end ratio) must be 41% or lower. However, if you have a credit score above 680, then you can request a debt ratio waiver from the USDA.
- Must have or had two accounts with a 12 month pay history
Qualifying income for a USDA 100% loan
Income limits to qualify for a USDA loan guarantee vary by state and household size. To find the loan guarantee income limit for the State/county where you live, please click the link below.
Is your new home in a qualifying USDA areas
Believe it or not, you do not have live in a rural area to use a USDA loan buy your new home. There are several outlying suburbs around the United States that are eligible. Please click on the link below to see if your new home is in an eligible area.
USDA Credit Requirements
While the USDA loan program itself does not have a minimum score requirement, it does have a minimum trade line requirement. A USDA loan requires two trade lines that are either open for twelve months or a closed account with a twelve month pay history. For borrowers that do not meet the minimum account requirement may substitute non-traditional sources to meet this account requirements. Some examples of non-traditional credit are: rent, insurance, utilities etc… These may be used to satisfy the requirement. If there are two borrowers, only one applicant must meet the three trade line requirements.
USDA Minimum Credit Score
The USDA does not a minimum score per say however, most lenders require a 620 or above
How does a USDA loan differ from a conventional mortgage loan?
USDA loans differ from conventional, or nongovernment-backed, mortgages in important ways.
- You don’t need a down payment with a USDA loan. The minimum down payment for most conventional loans is 5%, although some borrowers with excellent credit may be able to obtain a loan with just 3% down.
- USDA loans may have a much lower interest rate than conventional loans.
- USDA loans are intended for people with lower income. While conventional lenders will approve you for loans more easily with a higher income, USDA loans have family income limits that could prevent you from qualifying
- USDA loans charge an upfront fee and low mortgage insurance premiums. These monthly premiums are far less than conventional loans
What are the fees and costs associated with USDA loans?
USDA-guaranteed 100% loans charge a 1% upfront fee and also charge a monthly 0.35% mortgage insurance fee that you’ll pay for the life of the loan. On a $100,000 loan, you’d have to pay a $1,000 initial fee and each month you’d pay $350, on top of your mortgage payment. This funding fee is rolled into the loan, so the borrower doesn’t have to cover it in their closing costs.
USDA loan recap:
The USDA 100% loan is a great program for buyers that meet the USDA requirements.