The USDA loan is a home mortgage option guaranteed by the U.S. Department of Agriculture. These home loans have special requirements you won't typically find in other mortgage options, such as income limits and restrictions on where a homebuyer may purchase.
Fortunately, Neighbors Bank specializes in USDA loans, helping homebuyers navigate the USDA's requirements and obtain a $0 down payment home loan.
USDA Loan Eligibility
Eligibility is two-fold with a USDA loan. First, the property you’re purchasing must be located in a designated rural area. Luckily, the vast majority of the United States is eligible. Speak with a Neighbors Bank home loan specialist to help you navigate designated rural areas.
And second, the homebuyer must meet certain requirements, that include:
- You must be a U.S. citizen or permanent resident
- Your household income cannot exceed 115 percent of your area’s median income
- You must occupy the property as your primary residence
USDA Credit Score Requirements
There is not a stated minimum credit score for the USDA loan. However, most lenders require a 640 to use the USDA's automated underwriting system. Homebuyers below a 640 may still be eligible, but will be subject to manual underwriting.
USDA Loan Pros and Cons
Arguably the largest benefit of the USDA loan is the zero down payment option. Additionally, the USDA's up-front guarantee fee and annual fee is less than what you'd find with an FHA or conventional loan.
Benefits of USDA loans include:
- No down payment
- Competitive interest rates
- 100% financing
- Closing costs can be rolled into the loan
- Less stringent credit requirements
USDA loan disadvantages include:
- Income limits
- Property must be in a designated rural area
- Not available for income-producing property
5 Things Homebuyers Should Know About USDA Loans
If you're considering a USDA loan, keep the following in mind:
- USDA loans come with up-front and annual guarantee fees. Borrowers who chose a USDA loan will have a 1% up-front guarantee fee and a .035% annual fee. The annual fee is broken down into 12 monthly payments.
- Closing costs can be rolled into the loan. On USDA loans, sellers are allowed to pay a buyer’s closing costs. Borrowers can also choose to roll their closing costs into the loan as long as their home appraises for the total loan value.
- You must plan to live on the property. USDA loans can’t be used on income-producing properties or second homes. In order to qualify, you must be purchasing a single-family home that you plan to occupy as your primary residence.
- There is no maximum loan amount. Unlike FHA and conventional loans, which come with set loan maximums, USDA loans are more flexible. Loan limits depend on the borrower's qualifications and financial scenario.
- You can finance your mortgage insurance. Similar to closing costs, you may be able to roll your guarantee fee into your total balance.
USDA loans are a great option for rural buyers. Speak with a Neighbors Bank home loan specialist today to see if you're eligible.