USDA Home Loans
USDA home loans can provide 100% financing for eligible homebuyers purchasing a primary residence in an eligible rural or suburban area. That means qualified buyers may be able to purchase a home without making a down payment.
The program is designed to help low- and moderate-income households become homeowners. You don’t necessarily need to live far out in the country to qualify. Many properties outside larger urban areas may fall within USDA-eligible boundaries.
At Abaca Mortgage, we can help you determine whether your income and the property you’re considering may qualify.
Why Consider USDA Home Loans?
The biggest advantage of a USDA loan is the possibility of financing 100% of the purchase price. For buyers who qualify, that can remove one of the largest obstacles to homeownership: saving for a down payment.
USDA loans also offer 30-year fixed-rate financing. The program does have income, property, credit, and occupancy requirements, so both the borrower and the home need to qualify.
If you’re not sure whether USDA financing fits your situation, start with a conversation. We can look at the basics before you spend time pursuing a property that may not qualify.
The Property Must Be in a USDA-Eligible Area
USDA financing is location-based. The property must fall within an area that USDA considers eligible for its Single Family Housing Guaranteed Loan Program.
The word “rural” can be misleading. A property does not necessarily need to sit on farmland or miles outside of town. Some smaller communities and suburban areas can qualify as well.
Eligibility can change by address, so we prefer to check the actual property instead of guessing based on the city name.
If you already have a house in mind, send us the address, and we can help you determine whether it falls within an eligible area.
Who Qualifies for USDA Home Loans?
USDA loans are intended for low- and moderate-income households. For the Guaranteed Loan Program, household income generally cannot exceed 115% of the applicable area median household income.
One important difference with USDA financing is how the program looks at income.
USDA may count eligible income from adult household members, even when someone living in the home will not be a borrower on the mortgage. That means we need to understand who will live in the home and what income the household receives.
USDA also allows certain deductions when calculating adjusted household income. Because every household can be different, we’ll review the numbers instead of assuming you are over or under the limit.
USDA Does Not Set a Minimum Credit Score
USDA itself does not establish a universal minimum credit score for its Guaranteed Loan Program.
Individual lenders may set their own credit requirements, and the way USDA’s automated underwriting system evaluates a file can also affect the process. That means a score below 620 does not automatically mean USDA financing is impossible.
Credit history still matters. Lenders need to determine that you have the ability and willingness to repay your debts.
If your credit isn’t perfect, let us look at the entire situation before assuming you don’t qualify.
The Home Must Be Your Primary Residence
You must plan to personally occupy a USDA-financed property as your primary residence.
USDA Guaranteed Loans are not designed for vacation homes or properties purchased strictly for investment purposes. The home should provide adequate, safe, and sanitary housing for the borrower.
USDA financing can work with several residential property types, including eligible detached homes, attached homes, condos, planned-unit developments, modular homes, and certain manufactured homes.
If you’re considering something other than a typical single-family home, let us know early so we can review the property requirements.
What Condition Does the Property Need to Be In?
USDA requires the property to meet applicable standards for safe and sanitary housing.
That does not mean every home needs to be brand new or perfect. However, significant health, safety, structural, or property-condition issues may need attention before the loan can close.
If you’re considering a home that needs substantial work, talk with us before assuming a standard USDA purchase loan will work.
It’s much easier to investigate those questions before you are deep into a purchase contract.
USDA Loan Fees
USDA Guaranteed Loans currently have an upfront guarantee fee and an annual fee.
The upfront guarantee fee is currently 1% of the loan amount and can generally be financed into the mortgage. USDA also currently charges an annual fee of 0.35%, which lenders typically collect as part of the borrower’s monthly payment.
These fees help support the USDA loan guarantee program and can change in the future. We’ll calculate the applicable costs for your loan so you can see how they affect your payment.
What About Closing Costs?
A USDA loan may eliminate the need for a down payment, but that doesn’t automatically mean you will need no cash at closing.
You may still have closing costs, prepaid taxes, homeowners insurance, inspections, and other expenses associated with buying a home.
Depending on the transaction, seller-paid costs or lender credits may help reduce the amount you need to bring to closing. We’ll review your estimated costs with you before you move forward.
The goal is for you to understand the entire transaction, not just hear “zero down” and assume everything is free.
USDA Home Loans Are 30-Year Fixed Loans
The USDA Guaranteed Loan Program uses a 30-year fixed-rate mortgage.
Your interest rate comes from the lender rather than directly from USDA. Rates and available pricing can vary between lenders and market conditions.
As a mortgage broker, Abaca Mortgage can review the lenders we work with and help you understand the available financing for your situation.
You Do Not Have to Be a First-Time Homebuyer
USDA financing is not limited to first-time buyers.
A repeat buyer may qualify as long as the borrower, household, property, income, and transaction meet USDA requirements.
There can also be rules involving another home you currently own, so tell us about any other real estate early in the process. We would rather address that question upfront than discover it after you’re under contract.
We Check the Details Early
USDA loans have several layers of eligibility. The borrower needs to qualify, the household must meet the income limits, and the property must be in an eligible location.
That’s why we like to ask questions early.
Who will live in the home? What income does the household receive? Do you currently own another property? What address are you considering? How is your credit? What monthly payment are you comfortable with?
Answering those questions early can give us a much clearer picture of whether USDA financing makes sense.
Not Ready to Buy Yet?
You don’t need a signed contract before talking with us.
If you think USDA may be an option, we can start by looking at your income, credit, household information, and the general area where you want to purchase.
We’ve worked with customers long before they were ready to buy. There’s no charge for that homebuying preparation guidance.
If something needs attention first, we’d rather help you identify it now than wait until you’ve already found the house you want.
Ready to Explore USDA Home Loans?
If you’re interested in buying with little or no down payment, contact Abaca Mortgage and let us look at your situation.
We can help you check the property location, review household income, discuss credit and financing, and explain what comes next.