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USDA Home Loan Resources

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USDA Underwriting Guidelines
USDA refinance options & guidelines








Income Requirements for a USDA Loan

Family sitting in front of homeThe USDA Loan Program, also known as the rural development home loan, is a 30-year fixed-rate mortgage designed for home buyers with low to moderate income. The USDA home loans are mortgages that are backed by the United Department of Agriculture. The USDA does not actually lend the mortgage money to the home buyer but provides default insurance to USDA approved lenders who offer the USDA home loans. The default insurance is a great incentive to lenders to provide mortgage money to qualified home buyers who are unable to meet the requirements for a traditional mortgage. The USDA home loan does not require a down payment, 100% financing. There are income limits with USDA mortgages and the house must be located in a designated rural location. Surprisingly, many areas across the United States are eligible for a USDA home loan. USDA Loan Calculator

The following information will help you determine whether you meet the USDA guidelines.

USDA Loan Requirements

  • Area Requirement - The home must be located in an eligible location
  • Co-signer and Co-borrower - Yes, but complicated
  • Credit Score Requirement - Usually 640 - lower with some lenders
  • Gift Funds - Down payment and closing costs to 100%
  • Income limits - 115% of median household income for county
  • Loan Limits - 1-unit home - No loan maximum
  • Minimum Down Payment - 0% No down payment requirement
  • Monthly Mortgage Insurance (MIP) - .35% required with all loans
  • Mortgage Programs - 30-year fixed-rate only
  • Occupancy Types - Owner occupied only
  • Seller Paid Closing Costs (seller assist) - Up to 6% of sales price
  • Upfront Mortgage Insurance - 1% of the loan amount

Does my area qualify for a USDA loan?

Homes must be located in a designated rural location. The USDA provides a lookup tool to determine whether the home meets USDA area guidelines.

Co-signer and co-borrower

The USDA home loan program permits a cosigner. The cosigner(s) will not compensate for bad credit but will help improve the applicant's debt to income ratio. Debt to income is a simple formula that compares the total monthly debt payments to the total monthly income. For example, if the total monthly income is $4,000 and the total monthly debt payments total $1,000, then the debt ratio is 25%. ($1,000 divided by $4,000 = 25%). The USDA desires applicants to stay under 41% for the monthly bills and new mortgage payment. The cosigner can help with the debt ratio if the cosigner has moderate debt and satisfactory monthly income. In short, the cosigner's income and debt are added in to the borrower's income and debt. Hopefully, the combination of income will drive down the debt ratio and make the application more attractive to the lender.

If you're thinking about adding a parent or the parents as a co-signer, they'll have to live in the house. That's right, co-signers are required to occupy the property. Non-occupant borrowers are not allowed.


Credit score required for a USDA home loan

The minimum credit score for most lenders is 640, however some lenders may go below 640.

► Read more

According to the USDA underwriting guidelines, underwriters (that's the approval person), must perform a cautious level of underwriting.

Little or no credit history:

The lack of credit history on the credit report may be mitigated if the applicant can document a willingness to pay recurring debts through other acceptable means such as third party verifications or canceled checks. Due to impartiality issues, third-party verifications from relatives of household members are not permissible. Lenders can develop a Non-Traditional Credit Report for applicants who do not have a credit score in accordance with Paragraph 10.6 of this Chapter

Indicators of unacceptable credit

The following indicators require documentation meeting the criteria of Section 10.8 to approve an applicant's loan request for manually underwritten loans:

• Foreclosure within 3 years:
Including pre-foreclosure activity, such as a pre-foreclosure sale or short sale in the previous 3 years (refer to Attachment 10-B for additional guidance);

• Bankruptcy within 3 years:

• Chapter 7 bankruptcy discharged in the previous 3 years;

•  An elapsed period of less than 3 years, but not less than 12 months, may be acceptable if the applicant meets the criteria of Section 10.8 of this Chapter.

• Chapter 13 bankruptcy that has yet to complete repayment (repayment plan in progress) or has completed payment in the most recent 12 months.

• Plans that are completed for 12 months or greater do not require a credit exception in accordance with Section 10.8;

• Late mortgage payments, if any mortgage trade line during the most recent 12 months shows 1 or more late payments of greater than 30 days.

• Late rent payments paid 30 or more days late within the last 12 months.

Read more about USDA credit requirements in Chapter 10 including bankruptcy, foreclosure, and short sale acceptance

Gift money for down payment and closing costs

Gift money is permitted by the USDA. The gifted funds can cover the down payment and closing costs.

A gift can be provided by a family member, defined as the borrower’s child, spouse, or other dependent, or by another person who is related to the borrower by marriage, blood, adoption, or legal guardianship; or a fiancée, fiancé, or domestic partner. The donor of the gift may not be or have any connection with, the developer, the builder, the real estate agent, or any other interested party to the transaction.

Loan limits

The USDA loan program does not have a maximum loan limit.

Income requirements for a USDA loan

The USDA loan program does enact income limits that are adjusted for family size. The base income across the United States are:

1-4 member household: $82,700
5-8 member household: $109,150

The USDA provides an easy to use income lookup tool.

Minimum down payment

No down payment is required provided the home appraises at the sales price. It should be noted that if the home appraises higher than the sales price, the difference between the sales price and appraised value can include the closing costs in the loan amount.

Monthly mortgage insurance (MIP)

USDA loan requires an annual mortgage fee. The fee is collected in monthly installments. Here's how the fee is calculated:
Loan amount X .35% = annual cost and then divided by 12, which equals the monthly cost.

Mortgage programs

30-year fixed-rate only


Occupancy types

One family owner occupied principal residences only

The monthly fee is .35% of the loan amount divided by 12 months. Another example: $101,000 X .35% = $353.50 (annual renewal cost). Divide the annual cost by 12 months and you arrive at the monthly premium of $29.46

Seller paid closing costs (seller assist)

The home seller is permitted to pay the buyer's closing and prepaid costs up to 6% of the sales price.

Upfront mortgage insurance

Like the FHA and VA loan programs, the USDA requires home buyers to pay a fee called the guarantee fee. The guarantee fee is used to support the USDA home loan program. The cost is nominal, only 1% of the mortgage amount. The funding fee, called the guarantee fee is equal to 1 percent of the loan amount. For example, if you are borrowing $100,000, multiply $100,000 X 1% = $1,000.The guarantee fee can be paid in cash at settlement or financed. If financed, the loan would be $101,000.

Rotating question markFrequently Asked Questions About USDA Loans

Q. Are USDA loans fixed-rate?
A. The USDA only permits a 30-year fixed-rate.

Q. Are USDA loans good?
A. USDA home loans are a great way to purchase (or refinance) a home.

Q. Areas that qualifies for USDA loans
A. USDA must be located in an eligible area. Use the USDA lookup tool (see above)

Q. Can USDA loans be refinanced
A. USDA loans can be refinanced

Q. Disadvantages of USDA home loans
A. USDA requires monthly mortgage insurance regardless of the down payment. USDA home loans are only available in eligible areas and there are income limits with USDA mortgages.

Q. Do USDA loans have PMI?
A. Yes, however, the USDA uses the term MIP, for mortgage insurance premium

Q. How hard is it to get a USDA loan?
A. The USDA loan is no different than other home loans, with the exception of the USDA income limits and area requirements.