A USDA home loan is a zero-down payment mortgage for eligible rural and suburban homebuyers. USDA loans are issued through the USDA loan program, also known as the USDA Rural Development Guaranteed Housing Loan Program, by the United States Department of Agriculture.
HOW USDA LOAN PROGRAMS WORK
There are three USDA home loan programs:
- Loan guarantees: The USDA guarantees a mortgage issued by a participating local lender — similar to an FHA loan and VA-backed loans — allowing you to get low mortgage interest rates, even without a down payment. If you put little 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- and very-low-income applicants. Income thresholds vary by region. With subsidies, interest rates can be as low as 1%.
- Home improvement loans and grants: These loans or outright financial awards permit homeowners to repair or upgrade their homes. Packages can also combine a loan and a grant, providing up to $27,500 in assistance.
QUALIFYING FOR A USDA-BACKED MORTGAGE GUARANTEE
Income limits to qualify for a home loan guarantee vary by location and depend on household size. To find the loan guarantee income limit for the county where you live, consult this USDA map and table.
USDA guaranteed home loans can fund only owner-occupied primary residences. Other eligibility requirements include:
- S. citizenship (or permanent residency)
- A monthly payment — including principal, interest, insurance, and taxes — that’s 29% or less of your monthly income. Other monthly debt payments you make cannot exceed 41% of your income. However, the USDA will consider higher debt ratios if you have a credit score above 680.
- Dependable income, typically for a minimum of 24 months
- An acceptable credit history, with no accounts converted to collections within the last 12 months, among other criteria. If you can prove that your credit was affected by circumstances that were temporary or outside of your control, including a medical emergency, you may still qualify.