Like other federally sponsored mortgage loan programs, USDA home loans are backed by a government agency (The United States Department of Agriculture) and issued through private mortgage lenders. Backed by the USDA’s Rural Development Guaranteed Loan Program, the USDA offers 100% financing on these mortgages, making them a popular choice for first-time home buyers.
USDA home loans have the lowest down payment requirements of all mortgage loan types (along with VA loans), requiring absolutely no down payment.
Now you know what USDA home loans don’t require, find out what they do require for borrowers to get credit approval.
Basic USDA Home Loan Requirements
For qualifying borrowers, USDA home loans can be a great deal, providing access to 100% financing, affordable interest rates and low mortgage insurance costs. Basic USDA home loan requirements include the following:
- Qualifying borrowers should have FICO credit scores no lower than around 620 to 640.
- Borrowers must meet certain income limitations specified by the program.
- Borrower must be a U.S. citizen, non-citizen national or qualified alien.
- Borrowers must display willingness and ability to repay associated debt obligations.
- A USDA loan’s subject property must be located in a designated rural area. Although you probably think of farmland and deserts when you imagine rural locations, you will be surprised to see which areas the USDA considers rural (about 97% of the United States). Search your dream home’s eligibility here to find out whether its address qualifies as rural.
- The subject property must also be the borrower’s primary residence for the life of the loan.
- USDA home loans must be originated by a USDA-approved mortgage lender.
- Subject property must fall within certain limitations. USDA loans can finance new construction, single-family dwellings, townhomes, HUD-approved condos, FHA-approved modular homes and planned unit developments. Homes cannot exceed 2,000 square feet, cannot generate income, cannot have in-ground swimming pools and cannot have a market value which exceeds the area’s loan limit.
In addition to these requirements, mortgage lenders will also assess the borrower’s ability to repay the loan by determining your monthly debt to income ratio (DTI). A DTI ratio is determined by dividing your total monthly payments (including your proposed mortgage payment) by your gross monthly income.
Monthly DTI should be no greater than about 40%. To determine your own DTI, estimate your monthly mortgage payment using an online USDA mortgage calculator.
Apply Today to Find Out if You Meet USDA Home Loan Requirements
Mortgage Investment Group in Tennessee can help you select the right mortgage to suit your lifestyle and accommodate your financial goals. Whether that loan is a USDA home loan, FHA mortgage, VA loan, conventional or jumbo mortgage or another type of home loan, our experienced mortgage lenders will be there to help you every step of the way — from application to moving day.