What is a USDA Home Loan?

The U.S. Department of Agriculture created the USDA Rural Development Guaranteed Housing Loan Program in order to revitalize and develop rural areas through low interest, zero down mortgages. Issued through the USDA, this is one of the least-known government-backed mortgage programs, and while it’s more popular with first time home buyers, it can also be used for current homeowners to move to a new area or primary residence.

USDA Loan Requirements (as of 2019)

To be approved for a USDA loan, those applying must be a U.S. citizen or have proof of permanent residency and meet the following eligibility requirements:

Credit Score

While lenders vary in their requirements, borrowers typically must have a FICO score of at least 640.

Employment and Payment History

In addition to showing proof of a stable income through paycheck stubs and federal tax returns, applicants also must show a “willingness to repay the mortgage,” which typically means no late payments or collections on the credit report for the 12 months prior to application.

Income Eligibility

The adjusted household income is equal or less than 115 percent of the area median income. As of 2019, income for a family of four or less must have an adjusted pre-tax annual household income of less than $82,000. However, some areas of significantly higher costs of living than the national average will have a higher income limit.

Down Payment

USDA loans are zero down mortgages meaning there is no down payment necessary to purchase a home and 100 percent of the purchase price can be financed.

Home Qualifications

Because the loan program was started to “improve the economy and quality of life in rural areas,” certain urban and suburban areas are not eligible, but there are terrific opportunities even just a few miles outside of many city borders. Also, the home must be the applicant’s primary residence.

Advantages of USDA Home Loans:

  • Zero down mortgage
  • Finance up to 100% of the property value
  • Add all fees and costs to the loan, including the guarantee fee
  • No loan size limits
  • Refinance current USDA loan via USDA Streamline Pilot Refinance Program with no appraisal, options to finance all closing costs