USDA Loan & Credit Requirements - USDA Homes

What You Need to Know about USDA Loan Requirements

Most people have never even heard of a USDA loan let alone understand the USDA loan requirements to obtain a mortgage. But, as luck would have it, even those of us with lacking credit or income or both can qualify for a mortgage if the right conditions apply.

Have you always dreamed of living in the country but thought it was too much to afford? Or maybe you’d like to live in the outer lying areas of the suburbs, but you can’t quite qualify for a standard mortgage.

If any of the above mirrors your situation or finances, a USDA loan might be the perfect option for you and your family. Let’s take a look at how it all works.

What Is a USDA Loan and Who Qualifies?

Simply stated, a USDA loan is a loan provided by the United States Department of Agriculture to expand upon rural development. The program means to help low-income individuals and families live a better quality of life in a home of their own.

The USDA is a branch of government and therefore this type of loan often offers much better interest rates than a conventional mortgage, depending on the lender. With this type of loan, there is no down payment required if you qualify.

USDA Loan Requirements

The criteria for obtaining a USDA mortgage ensures that only certain types of properties and borrowers may qualify.

For example, you must be a US. resident, qualified alien, or non-citizen national seeking a mortgage for a home in a neighborhood or area zoned rural. You can only purchase the home as a primary residence and certain income limits apply.

USDA Home/Property Requirements

The basic requirements for the type of property eligible for a USDA loan are as follows:

You may also qualify for new construction, some manufactured or modular homes, some condos or townhomes, and short sales and foreclosed homes.

USDA Income Requirements

It may benefit you to use a USDA loan calculator to see if your income will qualify for this type of mortgage. The general requirements to qualify as low/moderate income are as follows; however some counties have higher income limits than others:


High Cost:

The income limits relate to the area’s median household income and may not exceed 115% of this number. Lenders will also look at your repayment income. This is determined by your adjusted annual income by calculating deductions from your regular annual income.

Within the realm of income requirements, your credit score is also a key factor. Anything above a 620 should qualify depending on the lender. Some borrowers may qualify with a lower credit score, so it doesn’t hurt to talk to a lender if you meet the other qualifications.

USDA Location Requirements

The home you plan to obtain a USDA mortgage for must be in eligible locations around the US. Most homes are rural; however, some suburban areas may qualify.

You can check the USDA eligibility site here. Make sure you have the home’s address.

Rural areas are defined as not being a part of an urban area or open country. The lender will also consider the population of the region which must not exceed 35,000. Within this broad definition, an estimated 100 million people over 97% of the nation’s land may be eligible.

USDA Loan Rates/Fees

While you won’t have a down payment, you will still need to have money available to pay for closing costs. However; USDA allows the seller to contribute up to 6% towards closing costs. Rates are competitive as long as you have qualifying credit and income.

USDA Loans Compared to Traditional Mortgage Loans

Traditional loans, otherwise known as conventional mortgages, are simply loans that are not backed by the US government. These types of loans include USDA, FHA, and VA loans. There is a difference, however, in the dynamic of a conventional loan vs. government-backed loan.

Down Payment

With a conventional mortgage, most borrowers are required to come up with some form of down payment, generally up to 20% of the purchase price of the home. USDA loans are one of only two loan options, including VA loans that offer zero-down financing.

Mortgage Insurance

When you put at least 20% down on a mortgage, you will not be required to pay mortgage insurance, however, with a zero-down payment option, you will be required to pay mortgage insurance but its only .35% of the loan amount financed.

For example, a $100,000 loan amount would have monthly mortgage insurance of $35 dollars, very affordable. This insurance premium helps to provide funding for the USDA loan program. Think of it as helping your neighbors!


As with any other mortgage, you will be required to obtain an appraisal for your new home. The difference is that the appraiser must also state that the condition of the home meets USDA standards.

The living condition of the home must include a roof that is up to code and heating systems that function properly. The appraiser will also make note of any insect damage and if applicable, well and septic system damage.

You Too Can Qualify for a USDA Loan

USDA loan requirements are not as stiff or stringent as you might think. The stipulations are merely in place to ensure that only those that qualify may obtain a mortgage through this type of program.

Go ahead, take a leap and see if it’s worth the effort, you may be pleasantly surprised with the end result – a new home to call your own!

When you’re ready to get the ball rolling on your new mortgage, contact us to schedule a consultation and see what dreams are made of. We pride ourselves on service and quality dedication to your needs.