The USDA RD Loan* is a great program to purchase a home with no down payment, and a typically lower monthly payment than other popular loan programs. The home must be in an eligible rural area defined by the USDA. These are typically rural unincorporated areas with under 50,000 inhabitants.
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What is a USDA* Home Loan?
The USDA Rural Development Guaranteed Housing Loan Program was set up by the USDA (U.S. Department of Agriculture) to help provide mortgage assistance to homebuyers who may not be able to qualify for traditional loans and who are interested in purchasing a house in rural or suburban areas. In 2017, the USDA loan* program helped an estimated 127,000 families buy and upgrade their homes.
|Minimum Down Payment||0%*|
|Terms (Years)||30 Year Fixed Only*|
|Gift Funds Allowed||Yes|
|Eligible Homes||Single & Multi-Family, New Manufactured Homes|
|Seller Paid Closing Costs||Up to 6% of the Sales Price|
|Loan Limits||Determined by Income and DTI|
|MaxDTI||29/41% (Higher DTI’s May Be Allowed In Some Cases)|
|Minimum Credit Score||600 Mid FICO|
|Availability||All US States, Only USDA* Eligible Areas, Owner Occupied|
Rural Development Loan
The ultimate purpose of the program is to improve the economy and the quality of life in rural parts of the country. Borrowers who qualify for the USDA loan will be able to purchase a new or existing residential property, buy property with a new or existing home, pay for repairs associated with the purchase of an existing home, refinance eligible loans, purchase essential household equipment (such as appliances and carpeting), pay for site preparation costs, and build their own home--as long as this is done in an eligible rural area.
No Down Payment Required
One of the big benefits of the USDA loan is that no down payment is required. Most traditional loans require down payments of up to 20 percent*, while many other government mortgage assistance programs require between 3.5 and 5 percent down payments.*
All borrowers must undergo an underwriting process. This helps the lender determine how qualified the borrower is. USDA loans tend to have much more flexible underwriting than other types of mortgages. Borrowers must have a credit history that indicates that they will be financially responsible and stay up to date on mortgage payments. Borrowers must also have a debt-to-income ratio that does not exceed 41 percent.*
No Cash Reserves Needed
Many loans require cash reserves to prove that the borrower will be able to pay future mortgage payments. No cash reserves are required to qualify for a USDA loan.*
Loan Limit Restrictions
There are some restrictions on how much a borrower can take out. Loan limits are based on the rural area where the property is located. This is because some rural areas have higher property values than others. Borrowers should look at the list of county loan limits* available on the USDA Loan California site.*
USDA Loan* Requirements
To be eligible for a USDA loan* in California, the borrower must meet a number of requirements.
USDA Loan Interest Rates*
Because USDA* loans are insured by the USDA*, lenders are more likely to offer low-interest rate* terms to borrowers. However, a number of other factors are taken into consideration as well, including the size of the loan and the borrower's credit history and financial status.
No down payments are required when using a USDA loan* to purchase a new house.
Example USDA: Loan amount $300,000, 0% down, monthly payment without taxes and insurance $1,475.82, APR 4.388%*
Loan Term Periods
USDA loans* are only available in 30-year fixed rate terms.*
Rural Location Requirements
Borrowers are only eligible if the home they are buying or repairing is located in a rural area. This includes properties in open country as well as places that have a population of less than 10,000. In some cases, properties in towns and cities with populations between 10,000 and 25,000 people may be eligible.
The size of the property the borrower owns or wants to purchase cannot exceed eight acres.
The USDA loan is meant to provide mortgage assistance to homeowners with some financial needs, which is why there are income limits in place. The income limits are 115 percent for the U.S. median income. Four-person households in most counties have an income limit of a maximum of $65,000.
Not Required to Be First Home Buyers
USDA loans* are not designed for just first-time homebuyers. Borrowers may have owned a home in the past or may currently own a home. Current homeowners can still be eligible for USDA loans if they want to repair their property.
Minimum Credit Score
Although the USDA* requires that borrowers have a minimum credit score of 600, most lenders require at least a 620.
Other FAQ’s About USDA RD Loans*
The following are a few other common questions borrowers often ask concerning USDA loan eligibility:
Can I Use Non-Traditional Credit?
Borrowers can use non-traditional credit. If they do so, USDA guidelines require that the borrower be able to provide at least three tradelines for at least 12 months if they can prove a rental history and four tradelines if they cannot. Non-traditional credit includes things like energy bills and water bills.
Are There Any Additional Fees For Accessing a USDA Loan*?
There are a few fees that the borrower will have to pay when taking out a USDA* loan: 1 percent of the loan amount for the USDA* guarantee fee as well as a 0.35 percent annual fee*. Part of these fees is due up front, while the rest is due on a monthly basis. However, the upfront fee can be rolled into the loan amount.
Can I Use a USDA* Loan for Refinancing?
USDA* loans can be used for refinancing. Loans that are refinanced will be done so at a fixed rate for a 30-year term and will be subject to a 2 percent upfront fee along with a 0.4 percent annual fee. There are several types of refinancing options available. Streamlined refinancing is only available for guaranteed loans and won't require an appraisal. Non-streamlined financing will require an appraisal and is available for Section 502 direct or guaranteed loans (significant equity must be built into the house to qualify).
Is There a Maximum Loan Amount?
The maximum loan amount is based on where the borrower is living or what county they are purchasing property in. Currently, the maximum loan amount available in California for a USDA loan* is $368,928 in San Luis Obispo.*
For loan examples and more information visit our disclosure page at https://www.uslendingcompany.com/disclosures/