USDA Loans

If you’re looking to buy a primary residence in a rural area, then it’s hard to go wrong with a USDA loan. Home loans through the USDA provide borrowers with a lot of valuable benefits. USDA rural development loans are budget-friendly and allow borrowers to lock in interest rates that are hard to beat.

With that being said, USDA loans aren’t for everyone. If you want to live in or near a major city, then this type of financing probably won’t work for you. Additionally, if you’re a high earner, then you may be ineligible for a USDA loan due to the program’s income limits.

With the help of a seasoned loan specialist, applying for a USDA loan is fairly straightforward:

1. Submit an application to your lender to get pre-approved
2. Find your property and verify that it meets the USDA guidelines
3. Complete a purchase agreement
4. Provide us with all the documentation we need to complete your loan
5. Sign all loan documentation
6. Finalize and close your USDA home loan

While this might seem like a lot of steps, we typically complete this process in under 30 days, so you can close on your USDA rural development loan and purchase your home as soon as possible.

The USDA enforces certain income limits to keep the program exclusive to those who they feel truly need financial assistance. The general USDA income limits are as follows:

Household Income Limits (in most counties): 

• 1-4 member household: $119,850
• 5-8 member household: $158,250

However, it’s important to note that these are not set in stone, often due to regional differences. More specifically, your income cannot be greater than 115% of the area’s median income for your family size. When determining your income, the USDA evaluates your income using four calculations to determine your eligibility.

Because USDA loans allow for no down payment, the upfront costs of getting this type of financing are relatively low. But, like with any home financing option, there are some costs you have to account for in order to get a USDA loan. These costs may include:

• Guarantee fees
• Appraisal fee
• Loan origination fee
• Underwriting fee
• Credit report fee
• Title insurance
• Escrow fee
• Recording fee
• Property taxes

At the end of the day, when taking out a USDA loan you should expect to pay around 2% to 6% of the home’s purchase price in closing costs.

Yes, you can get a USDA loan if you’re self-employed as long as you meet all of the USDA loan requirements. You will still need to provide some form of income verification so that the lender can ensure you fall within the program’s income limits.

Keep in mind that if you are self-employed, this can make getting approved for a USDA loan slightly more complicated. As a result, the processing time for your loan application may take a little more time than usual.

Yes, you can refinance a USDA loan. In fact, USDA loans have both streamlined and non-streamlined refinancing options to choose from:

• Streamlined refinance: Replace your current USDA loan with a new one to lower your rate, add or remove borrowers, or alter your loan term. Little to no equity is required and no appraisal is needed.
• Streamlined-assist refinance: This is a popular USDA refinancing option that is similar to the streamlined refinance but easier to qualify for. The streamlined-assist offers many of the same benefits of the streamlined refinance but you won’t be able to remove a borrower unless they’re deceased and you’ll need to demonstrate that refinancing will save you money on your mortgage payment.
• Non-streamlined refinance: A non-streamlined USDA refinance allows you to do many of the same things as the streamlined refinance options but the process will take longer and a new appraisal will be required.

Note that there is no cash-out refinance option available for USDA loans. If you’d like to explore refinancing options outside of USDA loans, check out our mortgage refinancing solutions.

Yes, one of the benefits of RD home loans is that they don’t come with pre-payment penalties. This means that you are free to pay off your RD loan at an accelerated rate if you wish and you won’t have to deal with any added fees or penalties.

The USDA may deny a home due to the following factors: 

• Your income: You may be denied if your income is too high for the program, it is not verifiable, or you have undisclosed debt.
• Employment status: If your employment situation changes during the application process, the USDA may not consider your income “reliable”.
• Changes to credit and debt situations: If your credit score meets the requirements, but circumstances change and bring your score below the threshold, you may no longer qualify. Additionally, if you suddenly start accumulating more debt, it may change your DTI.
• The property: If the property that you want to buy does not meet the requirements or is not in a designated zone, you cannot get approved with that property.

While there are limitations, many homes fall into the requirements that the USDA sets. You can purchase a few different kinds of property by using a USDA loan, including:

• Newly built homes
• Manufactured or modular homes
• Condos and townhouses
• Short sales and foreclosed homes
• Certain properties that are no longer in commercial use (property with acreage, barns, silos, etc.)

You can also obtain a USDA construction loan to buy land and fund the building of a primary residence for yourself in an eligible rural area. 

USDA home loans cannot be used for investment properties or other income-producing properties. Additionally, you cannot use a USDA loan to buy a second home or vacation home. If you’re interested in purchasing an investment property, take a look at the investment property loans we currently offer.

In addition to location requirements, the USDA has certain criteria that a property must meet in order to be considered for one of these home loans, including:

• Must be in a designated rural area
• Must be a single-family home
• Must be used as your primary residence
• Must be structurally sound, functionally adequate, and in good repair

There are many factors that are considered when classifying a rural area for the USDA’s purposes. While you can use these guidelines and the property eligibility map to help steer your search, the final say is up to the USDA when determining whether a certain property qualifies. An appraisal will ultimately be performed on the home to ensure that it meets all the requirements.

No, USDA loans do not require PMI (private mortgage insurance). However, that does not mean that there is no mortgage insurance required at all. Instead of PMI, there are two guarantee fees that must be paid: 1% of the loan amount upfront (can be financed) and .35% monthly.