USDA Loans: The Basics, Types, Eligibility and Benefits

We all have different preferences in life, from food to fashion, music and where you want to live. While some people prefer to spend their time in urban areas, others opt for the quiet lifestyle of the backcountry.

Here at Mortgage Right we have the perfect home purchase option for you’re looking to get away from the hustle bustle of city life and crowded streets. Better yet, we’ll work with you to see if your preferred location is eligible for the low rates and favorable terms of a USDA mortgage.

What Is A USDA Loan?

It is a mortgage loan that is available for eligible suburban and rural home buyers. The federal government via the United States Department of Agriculture (USDA) has facilitated this program since 1949, in aims of helping people who have the biggest need for safe housing, the opportunity to purchase one.

The USDA loan is also known as the USDA Rural Development Guaranteed Housing Loan Program and is most celebrated because of its zero down payment options, which allows individuals and families who might not qualify for conventional loans a way to finance their house.


A USDA loan is backed by the government, which means in case a borrower defaults, or can’t make payments on their mortgage, the government agrees to help out. Because of this extra security, lenders are able to offer better rates and terms to applicants with peace of mind. Less risk also facilitates more credit extension to the borrowers, which is why it is possible for someone without a strong income history to get 100% financing.


Are you able to be consider for a USDA loan? Each type of loan, from FHA, to jumbo, to conventional has their own set of eligibility requirements, USDA loans are no different.

  • Let’s take a look at them below.
  • You are be a US citizen or permanent resident
  • Have a history of dependable income
  • Maintain relatively good credit history, with no default accounts within the last 12 months
  • Your monthly loan service fee should not exceed 41% of your income
  • Your potential home must be within government approved suburban or rural area.

Other Requirements to know:

1.    Credit

  • There is no minimum credit score requirement for the loan.
  • You are eligible for the USDA loan with a credit score of 640 and above via the automated underwriting process.
  • You are still fit for approval with a credit score below 640, but your USDA loan will be approved using the manual underwriting (a loan officer verifies it per the published guidelines). Meaning, they may ask for more paperwork.
  • If you lack a credit history, you might still qualify for other credit references such as your utility payment history.

2.    Loan limit

Your limit is dependent on your location. The limit ranges from $216,840 to $500,000 based on the average property price of the area you’re looking to purchase in. If your home is in a high-cost location, you’ll have access to higher loan limits.

3.    Closing costs

Closing cost vary from lender to lender, and it is advisable to shop around for the best rates. Alternatively, here at Mortgage Right we’re happy to do the grunt work for you and collect different offers. We can then review them with you to see what your best options is.

4.    Down payment

There is no mandatory down payment for USDA loans, which makes them very popular. You can get up to 100% funding. Do keep in mind though, if you decide to put down money, you may be offered reduced interest rates.

5.    Mortgage insurance

As with many loans, you are required to take out a mortgage insurance for your loan. However, the good news is that in 2016, the percentages were lowered. Currently you only have to pay a 1% upfront fee upon approval, and 0.35% annually depending on the remaining principal balance.

It is possible to roll this cost over into your loan, so you still are able to sign the lease on your new home without putting any money down upfront.

6.    Repeat buying

You can apply for a USDA no matter if its your first home, or your fifth, as long as you will be using it as your primary residence.

Types of USDA Loans

No matter which USDA loan you apply for, you will be offered either a 15 or 30-year term with a fixed rate mortgage.

•    Direct loan

A direct loan may be a good option if you fall into the low, or very low income bracket.

  • You are considered to be low income if- your wages fall between the 50% to 80% median income level for your choosen area
  • You are considered to be very low income if-  your earnings are below the 50% median income level in the area you live
  • This option stands out because of the possibility of subsidized payments, extended term up to 38 years, and ultra low-interest rates.

•    Guaranteed loan

A guarantee loan was design to provide assistance for families that do not currently have adequate housing and are looking to move to an approved USDA RD Home Loan area. The government’s role in this option is to guarantee the lenders security if the borrowers default on payment.

To be eligible, your salary should not be more than 115% of the median income where you currently live. If approved, you can expect to be offered complete financing. This will allow you to relocate to a new area without having to make any payments upfront.

•    Rural repair and rehabilitation loan

This alternative is strictly for making renovations and repairs that help make your home more habitable and safer. This option suits you especially if you want to modernize or remove safety hazards from your property.

Benefits of USDA Loans

  • No down payment required
  • Easy to access
  • Can be used for repeat buying
  • Allows even low-income earners to own their dream homes at affordable rates

Where Do You Get The USDA Loans?

With so many variables, finding an approved USDA lender and shopping for different terms and conditions may seem daunting with seemingly endless questions to answer.

How do you get started? How do you know what works for you and what does not? Are you getting the best deal?

Here at Mortgage Right, we understand just how important a mortgage process can be and we make it a priority to ensure you’re getting the best deal out there. If you’re ready to get started exploring your USDA mortgage options, or just looking for more information, give us a call today.

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