USDA Home Loans Zero-Down Eligibility & Qualification [Until 2020 updated]


USDA home loans provide financing at 100 per cent, low rates and manageable payments. Such loans become more common by the day, as buyers find an easy way to purchase a home with zero down payment.

There are three forms of home loans through the USDA:

Loan guarantees: a loan provided by a local lender is insured by the USDA enabling lenders to benefit from low mortgage interest rates and low down payments.

Direct loans: These loans are issued by the USDA for low-income applicants, with interest rates of up to 1%.

Loans and grants for home improvements: These loans are intended to help homeowners fix or update their homes, up to $27,500.

What is the loan plan with the USDA?

The U.S. Department of Agriculture ( USDA) sets the program’s lending requirements, which is why the USDA Rural Development (RD) Loan is also known as. This form of mortgage lowers costs for both rural and suburban home buyers. This is actually one of the most cost-effective home buying services on the marketplace.

Since its inception in 1949, a loan from the USDA Rural Development has helped more than 1 million home buyers secure housing with little to no down payment.

What is qualifying for a Home Loan from the USDA?

The USDA home loan is available to lenders who meet the requirement of income and credit. Qualification is simpler than many other forms of loans, as the loan requires no down payment or high credit score. Home buyers should make sure they look at homes within USDA-eligible geographic areas, since the location of the property is the most important consideration for this form of loan.

USDA hypothecary Eligible Geographical Areas

The property must be located within an region qualified for the USDA. Borrowers can check for USDA maps to browse certain places, or find a particular address. If you are unsure of the eligibility of a house, check with a USDA loan official here.

Doesn’t your region find eligible? Okay, nearly 97 per cent of the land mass in the United States is eligible for USDA, containing 109 million citizens. Many properties in suburban areas may apply for USDA funding. Even if you think your area is too advanced to be considered “rural,” it is worth testing. The USDA eligibility maps continue to be based on census population statistics for the year 2000. This is a rare opportunity to use this zero-down mortgage plan to fund a suburban home before the USDA updates its charts.

Upcoming Map Changes for USDA

The USDA had scheduled updates to its eligibility maps for 1 October 2015. Map changes had been postponed, though, according to a source inside USDA.

Eligibility maps are now being reviewed every three to five years, according to source. The last review which took place in 2014.

The USDA runs from 1 October to 30 September for the fiscal year. That is why most major program changes occur in October. Watch for a territorial change of borders on October 1 , 2020 for this reason.

Changes in the year 2020 and 2021 are more likely. The reason: Census 2020. The USDA bases its maps on those counts of U.S. population every 10 years. Since the USDA has not made any significant improvements to maps since the year 2000, big updates are becoming increasingly likely to occur soon.

Benefits on USDA Home Loans

Zero Down (funding at 100 per cent)

Hands down, the USDA loan’s most critical attribute is that it requires zero down. This requires 100 per cent financing of the purchase price of an qualifying house. Loans from the FHA include a minimum down payment of 3.5 per cent, adding thousands to initial expenses. The no-money-down feature has enabled many people to purchase a home that otherwise would be locked out of homeownership.

USDA insurance

US government guarantees the USDA loan. Guaranteed does not mean that approval is guaranteed for any borrower. Rather, it means that if the borrower defaults on the loan, USDA will refund lenders. The USDA backing eliminates much of the risk from the loan and enables banks and mortgage firms to offer a zero-down loan at incredibly low rates.

USDA Warranty Premium

The lender guarantee is partly funded by the USDA mortgage insurance premium, which is 1.00 percent of the loan amount (decreased from 2.75 percent as of 1 October 2016). The loan also has an annual fee of 0.35 percent (decreased on October 1, 2016 from 0.50 per cent).

The annual charge is charged in twelve equal instalments per month. The up front fee is $1,000 for every $100,000 borrowed and the monthly premium is $29.

The borrower may either roll the upfront charge into the sum of the loan, or pay it out of pocket. The USDA mortgage insurance premiums are among the lowest compared with other forms of loans such as FHA.

Cheaper USDA loans since 2016

The USDA raising its monthly charge from 0.50 percent to 0.35 percent on 1 October 2016. Your monthly cost, multiplied by 0.35 percent, divided by 12, is equal to your loan sum or remaining principal balance.

In turn, the upfront cost fell from 2.75% to just 1.00%. It is a perfect way for home buyers to use this loan plan to get lower monthly payments.

USDA Limits on Home Loan Benefit

Guaranteed loans are available to “high” income earners, identified by the USDA as those earning up to 115 per cent of the median income of the state. A family of four who purchase a property in Calaveras County , California, for example, will receive up to $92,450 a year.

The revenue caps are generous. Moderate performers usually feel they are well within system limits.

It’s also important to note that USDA considers all household income into consideration. For example, if a family with a 17-year-old child who has a job has to report the child’s income for eligibility purposes in the USDA. The income of the child need not be on the application for a loan or used for certification. Yet when assessing eligibility the lender must look at all the household income.

Length of USDA loan

The USDA loan offers only two mortgage options: fixed rate loans for 15- and 30-year terms. These are the most proven and secure loan programmes. There are no adjustable-rate loans.

Low USDA hypothecary rates

Private banks and mortgage lenders are providing very low levels of USDA lending. The USDA backs those loans, making it easier and cheaper to lend to private banks and mortgage firms. In the form of lower prices the savings are passed on to the home buyer.

The rates of USDA loans are sometimes smaller than those for traditional and FHA loans. Home buyers who qualify for USDA also end up with lower interest payments due to higher mortgage insurance premiums associated with certain forms of loans.

USDA Home Loans Zero-Down Eligibility & Qualification [Until 2020 updated]

Closing Options on Price

USDA loans require the seller to pay up to 3 per cent of the purchase price for the closing costs of the buyer. Borrowers may also use family members’ gift funds or eligible non-profit organizations to cover closing costs when they receive this donor-signed USDA online gift note.

USDA loans often allow lenders to open a loan for the full sum of the value appraised, even if it is more than the purchase price. Borrowers are permitted to use the surplus funds to cover costs. For instance, the price of a home is $100,000 but it appraises $105,000. The borrower could open a $105,000 loan and use the extra funds to cover the costs of closing.

Investment Needs

Borrowers who do not have all of their closing costs covered by the lender or need cash otherwise to close the loan will have to show that they have enough funds. Bank statements are to be needed for two months.

There is also a provision that the borrower does not have ample assets to put down 20 per cent on a property. A borrower with ample assets to apply for a traditional loan is not qualified for a USDA loan.

Ratios of debt – 2020 Maintaining adjustments in 2014

On December 1, 2014, the system introduced new debt-ratio requirements. No changes to this framework are expected for 2020.

Prior to December 2014, no maximum ratios existed as long as the loan was approved by the USDA computerized underwriting scheme, called “GUS.” The borrower has to have ratios between 29 and 41 to go forward. This means the mortgage payment, taxes, benefits and HOA duties of the landlord can not exceed 29 per cent of their gross income. Therefore, all the mortgage payments of the creditor (credit cards, auto payments, student loan payments, etc.) added to the overall house payment must be less than 41 per cent of gross monthly income.

For example, a borrower with a gross income of $4,000 a month may have a house payment of as high as $1,160 and a mortgage payment of $480.

With a manual underwrite, USDA lenders can circumvent certain ratio requirements – when a individual checks the file rather than the algorithm. Ratios higher than 29/41 can be accepted for lenders with significant credit, spare money in the bank after closing or other compensating factors.

Required Credit Score – Updated to 2020

New minimum credit score has come into force in 2014 and will be passed to 2020. USDA loans with scores of 620 or even lower may be accepted before the move.

USDA has set a new credit score minimum of 640 as of 1 December 2014. This is not really a big change, as most USDA lenders needed a score of 640 before the official updates of the USDA.

One of the last 100 per cent funding options

During the housing bust, no money down loans seemed to have vanished, but USDA loans remained available at that period, and are still available today. USDA loan’s increasing popularity has shown zero-down loans are still in high demand.

Borrowers would be fortunate to have access to this low-cost, zero-down loan option in designated rural areas. Anyone finding a home in a small town, suburban or rural area should contact a loan specialist from the USDA to see whether they are eligible for this great program.

FAQ on USDA Home Loans

I’m just looking to buy a suburban house. Would I still need to look at USDA financing?

Hey. Most suburban areas nationally are qualifying for a loan from the USDA. To find out if your area is qualifying, fill in a short online questionnaire.

I assumed the USDA home loans were for farms only.

On the contrary, a loan from the USDA can not be used to finance the purchase of a farm which produces income. In fact , low acreage homes may be more suitable for the program, as USDA may not allow a home if its land value is more than 30 percent of the home’s total value. From the USDA Manual:

“Normally, the site ‘s value does not exceed 30 per cent of the property’s overall value. If the site value is typical for the area, as evidenced by the assessment, and the site can not be subdivided into two or more sites, the limitation of 30 percent may be exceeded.

Are USDA loans some mysterious form of loan that nobody really uses?

No. No. Every year thousands of home buyers use USDA support. The program is becoming ever more popular. Below is a map of how many loans the State funded in 2015.

USDA Home Loans Zero-Down Eligibility & Qualification [Until 2020 updated]
Data: CFPB

Is USDA offering a streamline refinancing program?

Hey. The borrower is currently expected to have a USDA loan to qualify, and must stay in the house. The new loan, just like purchase loans, is subject to the standard funding fee and annual fee. Borrowers must qualify using current income, but may qualify with higher ratios than generally accepted if the payment drops and their current mortgage payments have been made on time.

Unless the new funding cost is not paid into the loan, a new appraisal will not be needed of the lender.

May I use a USDA mortgage to buy a new build home?

Hey. In reality, a new home will meet much more easily the minimum USDA requirements than an existing home would. Many residential projects in USDA-eligible areas are on the rise making this loan a perfect option for new homes.

Will USDA need good care of the property?

Generally speaking yeah. In the assessment report, the assessor must state whether or not the property complies with minimum criteria, which are the same property requirements required for an FHA loan. Make sure your lender selects an FHA-approved assessor who will be able to verify that the property meets FHA standards.

Can I purchase a USDA loaned condo or townhome?

Yes, the lender must however warrant that the condo or townhome meets the requirements of FHA, Fannie Mae, Freddie Mac or VA. By certifying that a condo project meets these requirements, the lender assumes a lot of responsibility, so they may not be willing to approve a USDA loan for a condo or townhouse.

Could I use a USDA loan to purchase a manufactured home?

Generally, USDA only requires consumers to purchase new manufactured homes. Although pre-existing manufactured homes are usually not permitted, if the current owner has a USDA home loan on the house, they may be appropriate. Ask for this information from your real estate agent.

New manufactured homes must meet certain levels of thermal efficiency and be permanently anchored to a base. It must also have a minimum 400 square foot living space. A buyer interested in a manufactured / mobile home should test if the home is suitable for USDA with their real estate agent and lender.

Are USDA home loans just for homebuyers in the first place?

No. No. Buyers who purchased earlier will use the USDA system. Typically, though, lenders have to sell their current home or show it’s either too far from their job or else it’s no longer suitable.

Does USDA authorize gifts to help close costs?

Hey. Gifts may be accepted whether they come from a parent, a charitable group, a government agency or a nonprofit organization. For certain cases a friend’s gift may be used if evidence of the friendship can be identified prior to the loan transaction. Applicants receiving a gift would have to fill out the gift letter form for USDA. The form can be downloaded here.

What is the allowable minimum credit score for a USDA loan?

USDA awards the highest rate of approval to those with a ranking of 660 and above. USDA set a minimum score for the program at 640 on December 1, 2014. It was not a major change because most borrowers already had their own minimum score set at the same stage.

I don’t have the cash. May I get a loan from USDA?

Borrowers who have never used the traditional credit can qualify for a loan from the USDA. It will need at least 4 non-traditional sources, such as

  • The history of renting
  • Records of utility payments
  • Payments insurance

Could I finance my financing fee even though my LTV is higher than 100%?

The support fee is not regarded by USDA as part of its loan-to – value (LTV). In fact, therefore, USDA makes an LTV of just over 101%.

Why is the USDA home loan system not used by any buyer?

Many homebuyers may want a USDA loan, but the places they search for might not be USDA-eligible. Larger metropolitan and surrounding areas are not registered, as the system is designed to encourage rural development. But a large number of developed suburban areas still qualify.

Click here for USDA

USDA home loan rates are small and offers are now available for free. Check your eligibility for this program and find out about areas near you which are eligible for USDA. To get started, fill in a short online request form.