Are you looking to buy or build a home in a rural area? A USDA Rural Development Loan might be the perfect financing option.
These loans are designed to help low to moderate-income buyers purchase homes without a down payment in eligible rural locations.
If you’re considering this option, understanding the USDA Rural Development Loan requirements is key to determining if you qualify.
Apply for a USDA loan with Lendistry Home Loans.
What is a USDA Rural Development Loan?
A USDA Rural Development Loan, commonly called simply a USDA loan, is a home loan backed by the U.S. Department of Agriculture.
These loans were designed to promote homebuying outside major cities, support agriculture, and strengthen communities with populations under 50,000.
Types of USDA loans
USDA Rural Development Loans come in two main types: guaranteed and direct.
- Guaranteed loans: These are available to low to moderate-income borrowers. The USDA guarantees a portion of the loan, reducing the risk for lenders. You’ll work with a USDA-approved lender to secure financing.
- Direct loans: These loans are aimed at very low-income borrowers. The USDA acts as the lender, offering financing directly to eligible buyers. This type is reserved for those who may not qualify for other loans.
What are the USDA Rural Development Loan Requirements?
USDA loans have specific guidelines for borrowers to meet, just like any other loan.
Let’s look at everything you need to qualify for a USDA loan.
Location eligibility
One of the primary requirements for a USDA Rural Development Loan is that the property must be located in an eligible rural area.
The USDA defines rural areas based on population density, distance away from major urban centers, the economic focus of the area.
You must use the USDA’s online tool to check if the property you want is in an eligible area.
Income limits
To qualify for a USDA Rural Development Loan, your household income must fall within the USDA’s income limits for your area.
These limits are based on the number of people in your household and the county where the home is located. For example, larger households in more expensive areas may have higher income limits.
Generally, your income cannot exceed 115% of the area’s median household income. The USDA considers all household income, so even part-time jobs and side gigs count.
Confirm that your income qualifies for a USDA loan on their website.
Credit requirements
While the USDA doesn’t have a strict credit score requirement, most lenders prefer a score of at least 640 for easier approval. If your credit score is lower, you may still qualify, but expect a more detailed review of your financial history.
Your credit history should show a reliable record of paying bills and loans on time. Lenders will look at your ability to manage debts and ensure you’re not at high risk of defaulting on the loan.
If your score is lower than 640, improving your credit before applying can increase your chances of approval. Do this by paying down debt, checking your credit report for errors, and paying your bills on time.
Debt-to-income ratio
Generally, your monthly debt payments, including your future mortgage, should be no more than 41% of your gross monthly income.
Sometimes, lenders may allow a higher DTI if you have a strong credit score or additional financial stability.
When calculating your DTI, it’s important to account for all debts, including credit cards, student loans, and car payments.
Maintaining a manageable DTI increases your likelihood of getting approved for a USDA loan.
What types of property are eligible for a USDA loan?
For a USDA Rural Development Loan, the property you are purchasing must meet certain eligibility standards.
The home must be your primary residence; vacation homes or investment properties don’t qualify.
The property must also meet USDA standards for safety and livability, including:
- The property is structurally sound
- The proper utilities are installed and working
- Extensive repairs to the property are not required
Your lender may request an inspection to ensure the home meets these criteria. If the property checks these boxes, it’s likely eligible for a USDA loan.
USDA Rural Development Loan Requirements FAQs
Can I refinance my home with a USDA Rural Development Loan?
Yes, the USDA offers refinancing options through its Streamlined-Assist program, allowing you to refinance your USDA loan with reduced paperwork and no home appraisal, making the process easier.
How long does it take to get approved for a USDA loan?
The approval process can vary, but it generally takes 30 to 60 days from application to closing, depending on how quickly you can provide the required documents and how busy the lender is.
Are there limits on the type of property I can buy with a USDA loan?
Yes, the property must be a single-family home that you will use as your primary residence. Certain types of properties, such as farms, may not qualify unless they meet USDA guidelines for residential use.
Can I build a home with a USDA loan?
Yes, the USDA offers construction loans through its Single-Close Construction-to-Permanent Loan program.
This allows you to finance the construction of a home and convert it into a permanent mortgage when construction is completed.
Do USDA loans have mortgage insurance?
While USDA loans don’t have traditional mortgage insurance, they do require an upfront guarantee fee and an annual fee. These are generally lower than private mortgage insurance (PMI) fees on conventional loans.
Is there a limit on how much I can borrow with a USDA loan?
USDA loans do not have set loan limits, but the amount you can borrow depends on your income, credit, and the property’s appraised value. The loan must cover the home’s purchase price and any closing costs.
Can I qualify for a USDA loan if I’ve previously owned a home?
Yes, you can qualify for a USDA loan even if you’ve previously owned a home, as long as you don’t currently own a property and meet the other eligibility requirements.
Get a USDA loan with Lendistry Home Loans
By understanding the USDA loan requirements and exploring your options, you can position yourself for homeownership in a rural area.
Explore your USDA loan options with Lendistry Home Loans. Our team is here to guide you through the process and help you find the best option for your needs.