What Is a USDA Loan?
USDA Rural Development home loans are mortgages for homes that are located in designated rural areas. These loans are guaranteed by the United States Department of Agriculture (USDA), which is why you are able to secure one without a down payment. However, the home loan itself may be provided by a mortgage lender.
In addition to helping lower-income homebuyers, rural development loans are designed to help bolster these communities.
USDA Direct vs. Guaranteed Loans
There are two different home loan options:
- USDA Guaranteed Loans: In these instances, USDA loans are issued through a lender—this is the type of USDA home loan provided by Griffin Funding.
- USDA Direct Loans: In other cases, the home loan is issued directly through the USDA. While this might sound like the simpler solution because it comes directly from the source, there are actually quite a few restrictions for this option—including that you are very-low income and unable to obtain financing anywhere else.
When you apply for your USDA guaranteed loan through Griffin Funding, we strive to make the process as simple and streamlined as possible; in most cases we can complete everything within 30 days or less.
USDA Loan Benefits
The primary benefit of a USDA home loan is that it makes it possible for low- to middle-income individuals or families to purchase a home with zero down. However, there are many benefits to acquiring a USDA loan for your new home, including:
Top 3 Benefits of USDA Home Loans
- Less strict credit score requirements (as low as 600 FICO Score)
- More flexible guidelines (the ability to get a loan 3 years out of bankruptcy or foreclosure)
- Low upfront (1%) and an annual fee (paid monthly) mortgage insurance
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.)
USDA home loans cannot be used for investment properties or other income-producing properties. Additionally, you cannot apply a USDA home loan to a secondary residence or rental or vacation homes.
USDA Property Eligibility
The USDA has certain criteria that 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.
Like any type of home loan, USDA loans have their own set of eligibility requirements. First and foremost, the property must be located in a qualified rural area. Some of the other important aspects of USDA eligibility include:
Important Eligibility Factors
- U.S. citizenship or permanent residence
- Your adjustable income cannot exceed 115% of the area’s median income for your family size
- Dependable source of income (needs to be verifiable)
In addition to USDA loan requirements, each lender will have their own qualification guidelines. To qualify for USDA mortgage with Griffin Funding, borrowers must meet the following requirements:
- 600+ FICO score
- At least 3 years or longer since a bankruptcy or foreclosure
- Income is below the limit
- Approved debt-to-income (DTI) ratio
If you’re unsure whether you qualify for a rural development loan, speak to one of our loan officers today by calling (855) 394-8288.
USDA Loan Eligibility Map
While you might automatically assume that the rural areas that are covered by this loan are undesirable and out of the way, you may be surprised by the areas that are actually applicable, including some suburban areas.
It’s important to keep in mind that if you’re in the early stages of looking for a home, the property eligibility areas may change from year to year. You can use the Official USDA Eligibility Map to get a general idea of rural areas that qualify.
To check a specific address, you can also use the USDA address verification tool.
USDA Income Limits & Credit Requirements
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:
- 1-4 member household: $86,850
- 5-8 member household: $114,650
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.
While the USDA does not impose credit requirements, lenders typically do. At Griffin Funding, we strive to make our requirements as flexible as possible. If you are applying for a USDA home loan, you may be able to qualify with a credit score as low as 600.
Do USDA Loans Have PMI?
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 mortgage insurance fees that must be paid. Fortunately, with Griffin Funding, you can enjoy low upfront and monthly mortgage insurance.
Why Would USDA Deny a Loan?
The USDA may deny a home due to the following factors:
- Your income: 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.
If you do not qualify for a USDA mortgage, that does not mean you have to give up your dreams of homeownership. At Griffin Funding, we offer a diverse range of mortgage products that are designed to suit the needs of diverse borrowers, meaning that it’s likely one of our knowledgeable loan specialists will be able to help you find a home loan that suits your needs.
How to Apply for USDA Loan
With the help of a seasoned loan specialist, applying for a USDA loan is fairly straightforward:
- Submit an application to your lender to get pre-approval
- Find your property and verify that it meets the USDA guidelines
- Complete a purchase agreement
- Provide us with all the documentation we need to complete your loan
- Sign all loan documentation
- Finalize and close your USDA home loan
While this might seem like a lot of steps, we typically complete this process under 30 days, so you can purchase your home as soon as possible.
Apply for a USDA Mortgage Today
If you’re ready to move forward with applying for a USDA mortgage, submit an application online or call us at (855) 394-8288 to speak with a loan officer and get the process started. We are dedicated to helping our customers secure their mortgage with a straightforward process and positive experience.