In 1991 the United States Department of Agriculture (USDA) started offering loans for the development of rural and suburban areas. From first time home buyers prospective USDA loans are no-money-down loan to help borrowers with low/medium income to buy a home.
For the borrowers that meet USDA loans requirement, USDA offer many benefits paired with relatively lenient approval requirements. Government backed and insured they offer:
NO money down
Low interest rates
30 year fixed rates
You have the ability to roll in your closing costs into the loan
Flexible credit guidelines
So if you want to live in a suburban or rural area – generally with a population of 20,000 or less then a USDA loan may be your answer to owning your new home secondly each county has specific income limits that determine USDA Eligibility, and your current income must not exceed the limit set for that county.
The eligibility requirements for the USDA Loan are more lenient than other loan programs, however there are more requirements in total. For the USDA Loan Program, the home being purchased must reside in a rural area dictated by the Rural Development Rural Map. You can check property eligibility HERE. Keep in mind that these rural areas do change based on population increases and decreases, so certain rural areas may experience expansion or shrinkage.
USDA Loan program is a bit more lenient than other programs, however, most lenders have set a requirement for credit scores to be around 640. While borrowers with lower credit scores can apply, this will usually mean that other benefits of the program, like no-money-down, will no longer be available to that borrower. Because of this, we highly recommend a credit score of at least 640 to insure that the process for the USDA Loan program continues without any denials or additional conditions based on credit.
USDA Loan Limits
In regards to total loan limits, the USDA Loan Program does not set any limits on what the borrower can receive. However, the USDA Loan program will calculate a maximum amount based on the current borrower’s income and asset situation. So, while this means that a borrower can essentially purchase any home despite the cost, provided it’s in a rural area and the borrower is eligible income-wise, the USDA will also safeguard the borrower by not allowing them to buy a home they cannot actually afford the mortgage payments for.
The USDA does set restrictions on the type of home available for purchase. These homes cannot be seen as income-producing, and they must be considered safe and sanitary. An example of an income-producing home would be a home that has a full bathroom bedroom and kitchen area in the basement with a separate entrance. This would indicate that this part of the home could be used to rent out, producing income and making the property ineligible. Additionally, any major repairs reported by the home appraiser will need to be taken care of. The party responsible for those repairs is usually the seller, but it may be the buyer if the purchase contract specifically states all repairs will be addressed by the buyer.