You might expect a loan program backed by the U.S. Department of Agriculture to be geared toward farmers and rural homeowners, but that’s only partially correct. Zero-down USDA home loans are based on approved rural and suburban locations and other qualifying factors — and you don’t have to own cows or grow produce to get one!
What are the Different Types of USDA Loans?
There are three types of USDA mortgages to choose from:
- Loan guarantees: Local lenders issue your mortgage, and, thanks to the USDA-backed guarantee, you get a low mortgage interest rate. Best of all, you don’t even need a down payment. Note that mortgages issued with a low-down payment or $0 down require PMI insurance, which increases your monthly payment.
- Direct loans: Low-income applicants can get subsidized loans for as low as 1 percent interest. The income qualifications vary by location.
- Home improvement loans or grants: Loans or grants up to $27,500 help you repair or upgrade their homes.
How Can You Qualify for a USDA Loan?
Income limits depend on location and the number of people in your household. The USDA map and table provide the details. You must live in the home you’re financing through USDA and meet the following requirements:
- U.S. citizen or permanent resident
- The monthly payment includes principal, interest, home insurance and property taxes. This amount must be less than 29 percent of your monthly take-home pay. The rest of your monthly debt must be less than 41 percent of your income. (Exceptions may be made if you’re credit score is above 680.)
- Proof of steady income for the past 24 months
- Acceptable credit history, including no accounts sent to collections in the past year
Note that, if your credit score exceeds 640, you can qualify for a streamlined application process.
How Do USDA Home Loans Work?
Those with the greatest need receive special consideration. This may include families without a safe, sanitary home who are unable to obtain a traditional loan. If this applies to your situation and your income is at or below the limit for your area, you may be eligible for extra help.
What Type of Homes Are Covered?
USDA’s direct loans cover houses with less than 2,000 square feet of living space that also have a market value less than the loan limit–which can be up to $500,000 in California or Hawaii or less than $100,000 in rural areas. Pockets of metro areas apply, but rural locations are universally eligible.
