What is a USDA Mortgage?
USDA mortgages are provided by the United States Department of Agriculture to provide low-cost insured mortgage loans that suit a variety of options. A USDA mortgage may be the right option for you to purchase a home with no money down.
What kinds of mortgages does USDA offer?
USDA Guaranteed Mortgage
USDA Guaranteed Mortgages are the most popular type of USDA no down payment mortgage loans and allow the borrower higher income limits and 100% financing for purchase loans. USDA Guaranteed Mortgage applicants can have an income of as much as 115% of the median income for the household/area. All area limits for the Guaranteed program can be researched here. USDA Guaranteed mortgages have 30 year terms at a fixed rate.
USDA Direct Mortgage
USDA Direct Mortgage Loans are less used than USDA Guaranteed Mortgages because they are only available for low/very low income households to buy a home, defined by USDA. Very low income is below 50 percent of the area median income and low income is between 50 and 80 percent of area median income. Click here to view income limits for Direct Loans.
USDA Mortgage versus Conventional Mortgage
USDA Mortgages are more flexible on credit requirements
USDA mortgage loan requirements are not totally credit score driven, but borrowers are usually required to have a 620 FICO score or above to get approved through most USDA mortgage lenders.
USDA Mortgage Loans have low mortgage insurance
A great positive of a USDA mortgage, when compared to a conforming mortgage, is low interest rates and low mortgage insurance. USDA mortgage rates are usually competitive with conforming 30-Year mortgages.
USDA Mortgages dont require a down payment
USDA Mortgages have no down payment. Very few mortgage loan programs allow this.
USDA Mortgage Eligibility:
To be eligible for today’s USDA loan qualifications, your housing costs each month (mortgage principal and interest, property taxes, and insurance) have to remain below a specified percentage of your gross monthly income (29% ratio). Your credit background is also considered. A 620 FICO credit score or higher is required to obtain USDA mortgage approval through most of today’s lenders. You also need enough income to pay housing costs plus all other monthly debt that you have (41% ratio). Debt Ratios can be exceeded a little bit with compensating factors for the borrower. USDA applicants can have an income as high as 115% of the median area income.
See more on USDA Mortgage Requirements.
How much can be borrowed?
USDA mortgage guidelines set limits by:
Loan amount: While there isn’t a maximum loan amount set for a USDA mortgage loan, your debt-to-income ratios will determine how much you can afford (29/41 ratios). Also, total household income must be within USDA allowed maximum limits for your area. These limits can be found at here.
Maximum financing: The maximum USDA Rural Development Mortgage amount is 102% of the homes appraised value (100% plus 2% USDA guarantee fee).
How much money will I need for the down payment and closing costs?
USDA Mortgage requirements have no down payment and closing costs can be included in the loan amount (if appraisal permits).
What property types are allowed for USDA Mortgages?
USDA Mortgage Guidelines require the property to be Owner Occupied for the purchase of condos, planned unit developments, manufactured homes, and single family residences.
Is a USDA Mortgage possible after bankruptcy?
USDA mortgage eligibility requirements say that if a borrower has been discharged from a Chapter 7 bankruptcy for at least three years, they can apply for a USDA home mortgage. If they have a Chapter 13 bankruptcy in their history and made all court approved payments on time for at least one year, they are also eligible to make a USDA mortgage application.
Learn more about USDA Loans.