How to Apply for a USDA Home Loan Step-by-Step

The USDA loan program helps low- and middle-income consumers become homeowners in communities across the country.

These government-backed loans allow qualified buyers to purchase with $0 down. They also feature competitive interest rates and low mortgage insurance costs.

The USDA loan application can be started online or in person.

About the USDA Loan Process

Applying for a USDA home loan starts with prequalification. Getting prequalified with a USDA lender requires a credit check and a brief income review. USDA qualifies applicants using income from each adult earner in the household, regardless of whether they’re obligated on the loan.

Before you apply, have an idea of:

• How much you’d like to borrow
• Your household’s total monthly income

Preapproval puts you in position to make an offer once you find an eligible property. Lenders request income documentation to confirm your income and USDA eligibility before they will issue a preapproval. How long this takes depends on you. Providing all income documentation in a timely manner will help you get preapproved faster.

Once you’ve signed a purchase agreement, the USDA loan application process typically takes around 30-45 days. The faster all parties work together to complete and provide documents for loan approval, the quicker final loan approval and closing can happen.

Find a USDA Lender

USDA home loans come with income and property eligibility requirements. Finding a USDA-approved lender is a solid first step to getting one. Not every lender is.

Talk to one of our knowledgeable USDA loan specialists today to see if you qualify.

Get Preapproved

Getting preapproved is a key step for buyers. Preapproval gives you a solid look at what you can afford, and it shows home sellers you’ve got what it takes to make good on an offer.

When you apply for a USDA home loan, your lender will outline what documents are needed to verify the income you plan to qualify with.

USDA loans consider the total household income when determining what you can afford. Lenders will often need the following from you and each income-earning adult who will be living with you:

• Paystubs
• W-2s
• Bank statements
• Social Security Awards letter, if applicable
• Photo ID

USDA loan lenders will consider your total household income in relation to your major monthly debts. They use this debt-to-income ratio (DTI) to clarify how much you can afford and what they are willing to lend you.

The USDA loan program considers both front and back-end DTI ratios. The front-end ratio considers only your proposed monthly housing cost in relation to the monthly income. The back-end ratio looks at all major monthly debts, including the new mortgage payment, compared to monthly income.

For manual underwriting, USDA benchmarks for DTI ratio are 29% for the front end and 41% for the back end. However, USDA lenders often work with borrowers whose DTI exceeds these guidelines, and loans submitted through the USDA's Guaranteed Underwriting System don't require any specific DTI ratio.

Above all, preapprovals are not guaranteed loan approvals. You must satisfy all credit and income conditions from underwriting. And the property must pass a USDA appraisal before final loan approval can be issued.

Find a Home in a USDA-Eligible Area

You’ve been preapproved for a USDA home loan. Now it’s time to find a home in a USDA-eligible area and make an offer. Your preapproval letter shows sellers and agents you’re a lender-verified USDA buyer who can close. Keep it close at hand.

USDA’s property eligibility lies in primarily rural areas. But you can also find USDA-eligible homes just outside of major metropolitan areas. In fact, huge swaths of the country are eligible for USDA financing.

You can use this easy property eligibility map to do a quick look-up by property address.

Shopping with a real estate agent can help speed up your search for an eligible property. A dedicated agent will prioritize your needs and negotiate on your behalf. Whether or not you get an agent is completely up to you.

Underwriting Loan Approval

The USDA loan underwriting process kicks off after you hand your lender a signed purchase agreement. Your lender will order the USDA appraisal upon receiving your contract.

USDA home loans go through two stages of loan approval. All parts of your loan, including your income, credit and the property, must be cleared through underwriting first, then USDA. Your lender and/or USDA may request additional documents or information before approval can be issued.

The appraisal is a required step for final loan approval to assess property value. A satisfactory appraisal will confirm the property values supports the purchase price. The USDA Appraisal will verify the property meets USDA minimum property requirements (MPRs). These broad guidelines help assess whether the property is safe, sanitary, structurally sound and eligible.

Final USDA Loan Approval and Closing

USDA’s final approval of your loan is also known as the official “clear-to-close!”

You can expect closing to happen (usually) within a few days after final USDA loan approval. Your agent (if you worked with one) and your lender will work with the seller and title company to coordinate and schedule closing (date, time and location).

The best approach you can take when getting a home loan is going with the flow. The quicker you work with your lender through your application (before and after you’re under contract), the smoother and quicker your closing will go.