Are USDA home loans only for first-time homebuyers? No. Buyers who have purchased before may use the USDA program. However, borrowers usually have to sell their current home or prove it's either too far away from their work or otherwise is no longer suitable.
For many lenders, a credit score of 640 and above opens up the most loan options, including FHA and conventional loans. However, to qualify for the best loan program and the lowest interest rates, you'll need a score above 700.
The process of identifying an eligible property is quick and easy. Visit the USDA Income and Property Eligibility website, select the program you're interested in, and just type any address to see if it qualifies.
Complete Guide to the USDA Loan Program
- Prequalify with a USDA-approved lender.
- Apply for preapproval.
- Find a USDA-approved home.
- Sign a purchase agreement.
- Go through processing and underwriting.
- Close on your loan.
USDA Loan Eligibility
- U.S. citizenship or legal permanent resident (i.e. U.S. non-citizen national or qualified alien)
- Ability to prove creditworthiness, typically with a credit score of at least 640.
- Stable and dependable income.
- A willingness to repay the mortgage - generally 12 months of no late payments or collections.
Applying for a USDA loanYou can submit an application for a 502 direct loan to your local USDA state office. You can submit an application for a 504 loan to repair single-family housing with a USDA home loan specialist in your area.
Things like unverifiable income, undisclosed debt, or even just having too much household income for your area can cause a loan to be denied. Talk with a USDA loan specialist to get a clear sense of your income and debt situation and what might be possible.
The Possible Drawbacks
- Only primary residences can be purchased. USDA loans cannot be used to purchase a vacation home or rental property.
- There are geographical restrictions. Homes in urban centers won't qualify.
- There are income limits.
- Mortgage insurance is factored into the cost.
Most lenders will require a 640 FICO score to qualify for a USDA loan, although some will go down to 580. As with FHA and VA loans, however, USDA homeowners with a 580 credit score will be more carefully evaluated than those with a higher credit score.
The USDA doesn't permit income-generating structures or pools, and the land can't be income-generating or worth more than 30 percent above the value of the home. Wells and septic systems must be at least 100 feet from the home. Local zoning and code compliance.
If you meet all of the requirements for a USDA loan, it is a better option than FHA because they do not require a down payment and have a lower mortgage insurance rate. However, they are more challenging to qualify for than FHA loans.
Even with the money saving benefits of a USDA loan, it's important to remember that any real estate transaction, including one with a USDA loan, will have closing costs. Closing costs on USDA loans generally run between 3 to 5 percent of the purchase price; however, every homebuyer's situation is different.
Apply with a USDA-approved lender (30 minutes) Supply the lender with income, asset, and credit information (1 day) The lender issues a pre-approval (3 days to 1 week) You find a home in a USDA-eligible geographic area (timing depends on the home market)
4) You can make too much money to qualify for a USDA loan.Generally, you can't make more than 115 percent of the area's median income. Lenders will look at the total household income, including people who won't be obligated on the new mortgage, but there are some qualified deductions that can be subtracted.
USDA Loans and Seller Concessions Contribution LimitsIt's important to note that the seller paid closing costs for USDA loans cannot be any price you choose–USDA seller concession limits are limited to 6% of the loan amount. Seller concessions for USDA loans are among the most buyer-friendly out there.
Once the loan file is completely approved and signed off by USDA, the file is sent back to the lender with the final loan commitment. The home buyers will generally close about 3 days later depending on the property state. The entire process from purchase contract to closing takes around 4-5 weeks to complete.
USDA Loan Credit Score Requirements
| Loan Type | Minimum Score Requirement |
|---|
| Conventional | 660 |
| FHA | 640 |
| USDA | 640 |
| VA | 620 |
The United States secretary of agriculture is the head of the United States Department of Agriculture. The secretary is former Georgia governor Sonny Perdue. Perdue took office on April 25, 2017 after being confirmed by the U.S. Senate by an 87–11 vote.
If you're interested in a USDA direct loan or a home improvement loan, the USDA will be your lender. You'll need to visit your local rural development office to get started with an application. If you want to obtain a loan that's guaranteed by the USDA, you'll have to choose a private lender first.
USDA standard loan requirementsIn most cases, you can apply for a USDA home loan after your Chapter 7 bankruptcy has been discharged for three years (see below for special cases). As with other government-backed loans, you can apply for a USDA mortgage after bankruptcy filing.
