USDA FAQ

What is a USDA loan?

• A USDA loan is a mortgage backed by the U.S. Department of Agriculture, aimed at helping low- to moderate-income individuals purchase homes in rural and suburban areas. It offers zero-down-payment financing options for eligible borrowers.

Who is eligible for a USDA loan?

• Eligibility is based on income and property location. Borrowers must have a household income that falls below the USDA’s income limits, which vary by location and household size. The property must be in a USDA-approved rural or suburban area.

Do USDA loans require a down payment?

• No, USDA loans typically do not require a down payment, making them one of the few zero-down mortgage options available for eligible borrowers.

What are the income limits for a USDA loan?

• Income limits depend on the location and size of the household. Generally, household income cannot exceed 115% of the median income for the area. The USDA provides an income eligibility tool on their website to help determine if you qualify.

What types of properties are eligible for USDA loans?

• USDA loans are available for single-family homes in designated rural or suburban areas. The home must be used as the borrower’s primary residence and must meet certain safety and livability standards.

How do I check if a property is eligible for a USDA loan?

• The USDA offers an online property eligibility tool where you can enter an address to see if it qualifies for a USDA loan. Most rural areas and many suburban areas qualify.

What credit score is required for a USDA loan?

• The USDA does not set a minimum credit score requirement, but most lenders prefer a score of at least 640 to qualify for automated underwriting. Borrowers with lower credit scores may still qualify with manual underwriting if they meet other requirements.

What is USDA mortgage insurance, and how does it work?

• USDA loans require two types of fees: an upfront guarantee fee (usually 1% of the loan amount) and an annual fee (about 0.35% of the loan balance). These fees are similar to mortgage insurance and help fund the USDA loan program.

Can USDA loan fees be rolled into the loan?

• Yes, the upfront guarantee fee can be rolled into the loan amount, which allows borrowers to finance the fee instead of paying it upfront at closing.

What is the maximum loan amount for a USDA loan?

• There is no maximum loan amount for USDA loans, but the loan must be affordable based on the borrower’s income and debt levels. The loan amount is also influenced by the appraised value of the property.

What are the advantages of a USDA loan?

• Advantages include no down payment, competitive interest rates, low mortgage insurance costs, and the ability to qualify with a lower credit score compared to conventional loans.

What are the disadvantages of a USDA loan?

• Disadvantages include geographic restrictions (limited to rural and some suburban areas), income limits, and the requirement to pay mortgage insurance fees for the life of the loan.

Can I use a USDA loan to purchase a second home or investment property?

• No, USDA loans are only available for primary residences. The property must be owner-occupied.

How long does the USDA loan process take?

• The USDA loan process can take 30 to 60 days, depending on the lender and the volume of applications being processed by the USDA office.

Can I refinance with a USDA loan?

• Yes, the USDA offers a streamlined refinancing program for homeowners with existing USDA loans. This program can lower interest rates and reduce monthly payments without requiring a new appraisal or credit check.