Life in the country offers peace, quietness, and beauty that isn’t always found in the hustle and bustle of cities. Maybe you’ve lived in a rural town your whole life, or perhaps you’re seeking a change of pace and looking to move outside a major metropolitan location. Either way, there are some serious financial perks to buying a home in a more rural or suburban area with a loan backed by the U.S. Department of Agriculture (USDA).
The most important thing when considering a USDA home loan is making sure the property you want to buy is eligible and located in a qualifying area of the country. In this post, we’ll explain what USDA loans are and how they work, the requirements for getting one, how to find USDA-eligible homes for sale, and the process for getting this type of loan.
What is a USDA Mortgage Loan?
A USDA home loan is a mortgage obtained through a qualified lender that is available to borrowers buying a home in a rural area. Because these loans are backed by the government, they offer the benefits of no down payment and low interest rates.
These loans are geared toward making homeownership affordable for low- and moderate-income individuals and families in rural areas. USDA’s definition of rural is broad though, as it can include small towns and suburbs of major U.S. cities. In fact, 97% of U.S. land is eligible for the USDA loan program. Providing an affordable way to buy homes helps these areas build thriving communities and provide a better quality of life for rural residents.
DO YOU MEET THE REQUIREMENTS FOR A USDA MORTGAGE LOAN?
To qualify for a USDA home loan, you’ll need to make sure you meet the minimum requirements that include:
- Be a U.S. citizen or legal permanent resident.
- Have acceptable credit history. While there is no minimum credit score requirement set by the USDA, credit guidelines vary depending on your lender.
- Your monthly payment, including principal, interest, insurance, and taxes, should not exceed 29% of your monthly income.
- Your total debt payments, including your proposed mortgage payment, should not exceed 41% of your monthly income.
- Have stable and dependable income, typically for a minimum of two years. Adjusted household income needs to be equal to or less than 115% of the area median income.
You can check on the USDA website if your income allows you to qualify for a USDA loan. You’ll be asked to enter the state and county where you will be purchasing a home, some details about the people that will live in your household, and your income information.
The website then determines if your income falls within the range allowed, taking into consideration the allowances the USDA provides for certain situations, such as having children or disabled family members living with you.
WHAT TYPES OF HOMES QUALIFY FOR USDA LOANS?
USDA loans allow you to buy several different types of homes, but it’s important they fit the following requirements:
- USDA loans can be used to purchase new construction and preexisting homes, manufactured homes, condos, townhouses, as well as short sale and foreclosed homes. In addition to purchasing or building a home, USDA loans can be used to renovate, improve, or relocate a house in an eligible area.
- The property must be your primary residence. It can’t be an investment property, rental property, vacation home, or second home.
- The home you’re buying must also meet USDA’s requirements of being “decent, safe and sanitary.” This means it must have a structurally sound foundation, good roof, easy access from a road, functional heating and cooling, electrical and plumbing systems and adequate well and septic systems, if they already exist on the property.
HOW TO FIND USDA HOMES FOR SALE
Now that you’re aware of the income and property requirements, here’s how you find USDA-eligible homes for sale. First, you’ll need to identify a qualifying area and then check if a specific house for sale there is eligible.
The best resource is to use the USDA property eligibility map to check the address of a specific house for sale. Once you type in the address and click search, you’ll then see a pop-up that will let you know if that address is or is not located in an eligible area.
If you do not have a specific address to check, you can zoom in on the same map to see shaded areas on the map that are eligible for USDA loans. You’ll notice that some areas have a peach-colored background and others are white. The peach tone indicates that homes in that region are not in USDA-eligible areas. Homes in the sections of the USDA loan map with a white background are generally USDA-eligible homes.
One important thing to note is that you can’t assume every home in an area qualifies for USDA loans. Certain towns can be split up, with some parts eligible and some not. USDA uses the U.S. census to determine eligible areas for these loans. Because the program is used to help less populated areas build up, the more populated an area becomes, the less likely it will remain eligible.
Once you find an area you want to buy a home in, you can use traditional online real estate websites to find houses for sale. When you have specific addresses picked out, enter those in the map to see if they qualify. To make the process even easier, you should consider working with a real estate agent who is knowledgeable about buying USDA-eligible homes. They will be able to guide you through the process of finding homes in a specific area that qualify for a USDA loan. Working with an experienced professional can save you a lot of time in the long run.
WHAT IS THE PROCESS FOR GETTING A USDA LOAN?
It’s best to begin your search for an eligible home after you’ve been pre-qualified for a loan. That way you’ll get an estimate of what mortgage amount you may qualify for, so you’ll know what price range to stick with when searching for a home.
The process for getting a USDA mortgage loan is similar to getting other types of home loans. First, you must work with a USDA-approved mortgage lender. Your lender will handle the loan application process, and the final determination of whether the home is an eligible property will be made by the USDA Rural Development department once it receives your application from your lender. Approval for your loan may take a little longer than normal since it needs to be approved by both your lender and the USDA.
With the financial benefits of USDA loans, plus the perks that living in a rural community brings, a home loan backed by the USDA is a great option to consider for financing your next home purchase.
If you’re interested in using a USDA loan to purchase your next home, talk to one of our loan officers today to get your questions answered and see if you qualify.