What Is a USDA Loan?

USDA loan is a federally-backed mortgage program that assists individuals and families in purchasing homes in rural and suburban areas. Unlike a conventional or non-QM mortgage, USDA loans offer unique benefits tailored to home buyers in qualifying regions.

One of the most significant advantages of this loan is financing with little to no down payment required, making homeownership more accessible for those with limited savings. Additionally, USDA loans often feature competitive interest rates and flexible credit requirements, making them an attractive option for eligible borrowers looking to achieve their homeownership goals in rural North Carolina and beyond.

USDA loans are available throughout the state of North Carolina, so homeowners looking for USDA home loans in Charlotte, NC, have the same opportunities as those looking for financing in smaller rural towns like Boone or Asheville, depending on the property you wish to purchase and its location.

USDA Loan Requirements in NC

To qualify for a USDA loan in NC, you’ll need to meet two sets of criteria — the lender’s and the USDA’s. These loans aren’t just about your financial standing; they hinge on the property’s location and how you intend to use it. Some key USDA loan requirements in NC are:

  • Property location: The home you intend to purchase with a USDA loan must be in a USDA-designated rural area. These areas are typically outside of major metropolitan areas and are identified based on population density.
  • Income limits: USDA loans have income limits based on the area’s median income. Your household income must fall within these limits to qualify for a USDA loan in NC. These limits vary depending on the number of people in your household and the county where you plan to buy the property.
  • Primary residence: When using a USDA loan to purchase a home, that home must serve as your primary residence. After closing the loan, you must certify that you’ll live in the home as your primary residence within a reasonable timeframe.

Income limits for USDA Loans in NC

The USDA sets income limits to ensure that the loan program remains accessible to individuals and families who truly need financial assistance to purchase a home in rural areas. The USDA sets general income limits based on the number of people in the household, with higher limits for larger families. However, these limits can vary regionally based on factors like the area’s median income.

For instance, your household income cannot exceed 115% of the median income for your family size in the area where you intend to purchase property. While there are general income limits, the specific limit for your location may differ based on local economic conditions.

To determine your eligibility, the USDA evaluates your income using different calculations, considering various sources of income and deductions, to arrive at your household’s adjusted income, which is then compared to the applicable income limit for your area.

Pros and Cons of USDA Loans in NC

While USDA loans offer numerous benefits, they may not be the ideal choice for everyone. Eligibility requirements based on both the borrower and the property can limit who can use these loans. Additionally, while the lack of a down payment requirement is a significant advantage, you must consider other factors before committing to this type of loan. Let’s explore the pros and cons of USDA loans in NC:

Benefits of USDA loans in North Carolina include the following:

  • Zero percent down payment: With no down payment requirement, eligible borrowers can finance 100% of the loan, allowing them to save money on the initial investment.
  • Competitive interest rates: USDA loans in NC come with competitive interest rates that can potentially save homeowners thousands of dollars throughout the life of the loan.
  • Flexible credit requirements: While lenders may impose credit score requirements, USDA loans generally have more lenient credit criteria compared to conventional loans.
  • No private mortgage insurance (PMI): USDA loans don’t come with PMI, but they do come with guarantee fees you should be aware of. In any case, these fees are often much lower than monthly PMI, allowing you to save over the life of the loan.

Potential disadvantages of USDA loans in NC include:

  • Property restrictions: USDA loans in NC are only available for properties located in USDA-designated rural or suburban areas. This can severely limit your options if you prefer living in a city or a more populated area.
  • Income limits: You won’t qualify for a USDA loan in NC if you earn too much. The USDA sets income limits based on location and household size, so make sure you understand these figures before applying for the loan.
  • Funding fees: USDA loans require an upfront guarantee fee and an annual fee, which can add to the overall cost of the loan. In 2024, the upfront fee is 1% of the loan amount, and the annual fee is .35%.
  • Application processing timeline: USDA loans require approval from both the USDA and your private lender, so the loan process may take longer compared to traditional loans that don’t require a government agency to review applications.

Qualifying for a USDA Home Loan in NC

You’ll need to meet certain standards set by lenders to get approved for a USDA home loan in North Carolina. You should always ask your mortgage lender about their specific requirements, but here are a few general criteria you’ll need to meet:

  • Credit score: Your credit score is a gauge of your overall creditworthiness. While there’s no strict minimum for USDA loans, your lender may set their own requirements. A higher score generally improves your chances of approval.
  • Debt-to-income (DTI) ratio: Comparing your monthly debts to income can help lenders determine if you can take on more debt. Most lenders prefer a DTI ratio of around 41% or lower, though exceptions can be made depending on other factors.
  • Waiting period for bankruptcy and foreclosure: If you’ve experienced bankruptcy or foreclosure, lenders usually require a three-year waiting period before you can apply for a USDA home loan in NC.
  • Income stability: Lenders assess your income stability to ensure you can afford the mortgage payments. Consistent employment and income history strengthen your application.

Wondering if you qualify for a USDA mortgage in North Carolina? Download the Griffin Gold app to review your finances, explore your eligibility, and kick start your journey to homeownership with just a few clicks.

See If You Qualify for a USDA Loan in NC

If you’re looking to purchase a home in North Carolina but don’t have a lot saved up, consider USDA loans. These loans are enticing choices for eligible low-to-moderate-income buyers in rural and suburban areas.

Griffin Funding can help you understand whether USDA loans are right for you. As your trusted partner, we guide you through the entire mortgage process to make sure you know everything there is to know about your loan. Apply for a North Carolina USDA loan today.