USDA Loan

Last Updated: 03/24/2024

Loan Highlights

Low to moderate-income homebuyers in rural areas.
No down payment required for eligible borrowers.
Government-backed loan program designed to promote homeownership in rural areas.
Offers competitive interest rates and flexible credit requirements.
Ranges from $100,000 to USDA loan limits in the borrower's area.

Federal Fund Rate + 1.50% Margin

*The mortgage interest rate calculation above is estimated. The subject borrower for that interest rate is as follow:

Interest rates: Fixed or can be ARM.
Loan terms: 15 or 30 years amortized.
No down payment required for eligible properties.
Upfront USDA Guarantee fee required (one-time 1% of the loan amount).
Annual USDA Guarantee fee is around 0.35% of the loan amount per year (Will fall off once equity reaches 20%).

FICO: 620+
DTI: 41/45
Property must be located in an eligible rural area as defined by the USDA.
Borrowers must meet income eligibility requirements, typically set at or below 115% of the area median income.
Employment History: 2 years for W2 employees and self-employed (the amount of year can sometimes very if you’re in school or self-employed).
Documentation:
- Typical Documents: Typically full documentation (full docs) including pay stubs, tax returns, W-2 forms, bank statements, and proof of assets. Alternative documentation (alt-docs) may be accepted in certain cases.

USDA Direct Loan: Direct loans provided by the USDA to low and very low-income borrowers who are unable to obtain conventional financing.
USDA Streamlined-Assist Refinance: Allows borrowers with existing USDA loans to refinance to lower interest rates without a new appraisal or credit qualification.
USDA Home Improvement Loan: Provides financing for home improvements or repairs for eligible rural homeowners.

U.S. Department of Agriculture (USDA) guarantees USDA loans, which are originated and funded by approved lenders such as banks, credit unions, and mortgage companies.

Common misunderstandings with USDA loans include:
- Misconceptions about rural eligibility: Borrowers may not realize that certain suburban areas and small towns may be eligible for USDA loans, and they should check the eligibility map in USDA website for specific areas.
- Underestimating income requirements: While USDA loans are designed for low to moderate-income borrowers, there are income limits based on area median income that borrowers must meet to qualify.
- Documentation requirements: Borrowers should be prepared to provide extensive documentation of income, assets, and employment history to meet USDA loan requirements, similar to other mortgage programs.