The USDA mortgage has two critical eligibility factors that apply to any home buyer wishing to obtain financing. In addition to these eligibility factors, the USDA program has standard loan qualifying criteria that must be met as well.
Below we will discuss both in detail. Please be sure to contact us with any questions about USDA loan eligibility by calling Ph: 800-743-7556. We serve home buyers and current homeowners in all 50 states. For quick service, you can submit the Quick Contact form located on this page.
USDA Eligible Locations: To be eligible for USDA financing the subject property must be located in an area deemed “rural eligible” by the agency. We have included a link to the 2024 USDA property eligibility map here. Simply input the address to check to see if a house is eligible. Tip: Leave out the property city name and state – just input the street number, street name, and zip code. Applicants can also get an overall idea of the entire area or county they live in.
It’s important to remember the home seller is not relevant to USDA. Home buyers can purchase any bank-owned home, foreclosure or regular listed property that is in overall good condition. Additionally, the home to be purchased can be a single-family, townhome or condo. The important factor is where the home is located, as it must be located in a rural defined area according to the map.
Please note: mobile/manufactured homes, raw land/acreage, and “build on your own lot” type financing is NOT permitted. Please contact us if you need assistance finding a list of USDA-approved homes in your city. If you are not located near a rural defined area, please submit the Quick Contact Form on this page to discuss low-down payment financing alternatives.
USDA Household Income Limits: The USDA Rural Housing program also has household income caps in place for each county in the U.S. The income caps include TOTAL household income. Not just the applicants listed on the loan application, but all income-producing members of the household living in the residence – this is important to remember. The average income cap for the USDA program is about $110,650 yearly gross income for a 1-4 person household.
Income limits increase significantly for households with 5+ members. In addition, there are income deductions permitted for households with dependents, child care expenses, elderly care, etc. Please read more info about the new 2024 USDA Rural income limits. Contact us by submitting the Quick Contact form on this page if you have any questions on income limits or how to properly calculate.
In addition to the loan eligibility factors above, the program also has standard loan qualifying guidelines in place:
- USDA Credit Score: Applicants will want to ensure their credit score is 620 or greater in order to be approved. Keep in mind that a 620 or greater credit score does not guarantee loan acceptance. All USDA lenders have additional “overlays” or waiting periods for any applicants who have experienced serious financial hardships, regardless of credit score. This includes a past bankruptcy, repossession, short sale or home foreclosure.
- Employment & Work History: USDA lenders require a solid two-year employment history with no extended or unexplainable gaps in employment. Switching employers within two years (same line of work) is acceptable. Example: David has been working for the cable company for the past 5 years. He recently resigned to go work for a different cable company. David also decided to take 2 weeks off in between jobs. This example is perfectly acceptable.
- Commissioned, 1099, or self-employed borrowers will need to have a solid two-year history with tax returns. Please note this does not apply to applicants who are recent college graduates, applicants on total disability or retired/pension applicants.
- Debt to Income: Most home loan programs have debt-to-income ratio limits, and USDA is no exception. USDA is typically looking for buyers’ housing debt ratios to not exceed 30% of their gross income. Total debt ratios (housing debt plus all other monthly debt listed on the credit report) is not to exceed 42%. Note that child support, alimony payments, and student loans will be included in the overall debt. The debt ratio limits are firm for loan files that require a manual underwrite, these are typically files with lower credit scores. Slight exceptions to the debt ratio rules can apply to applicants with strong compensating factors like high credit scores (720+) good bank savings (reserves) etc. Additionally, files that receive an accepted approval under the USDA automated GUS underwriting system.
An example of USDA debt-to-income ratio calculations:
Mary is a school teacher and she makes a $4,000 gross income per month. 30% of her gross income is $1,200. This means Mary’s housing expense debt ratio (principal, interest, applicable real estate taxes and home insurance) should not exceed $1,200 per month. Mary’s housing expense plus all her other monthly debt (listed on her credit report) should not exceed 42% of her gross income each month.
Mary has a car loan payment of $400 per month, along with a credit card payment of $80 per month. So Mary’s housing expense of $1,200 + $400 car payment + $80 credit card payment = $1,680. This is 42% of Mary’s gross monthly income – the max generally allowed by USDA.
Applicants can figure out monthly mortgage payments by using the USDA mortgage calculator found on this page. Please be sure to call us today if require any assistance or want to learn how to apply.
Additional USDA Loan Requirements:
USDA Guarantee Fee: Similar to other government mortgage programs like FHA and VA, the USDA Rural Housing loans require a one-time upfront guarantee fee to help sustain the program. The guarantee fee (1% of the loan amount) is required for both USDA home purchase and USDA refinance loans. The guarantee fee can be paid separately but is most commonly rolled into the borrower’s loan.
USDA permits the guarantee fee to be included in the borrower’s loan regardless of the appraised value of the house. The current 1% USDA guarantee fee structure is in effect until October 2024.
Example of how to calculate the one-time USDA guarantee fee: John is using the USDA Rural Development loan to purchase a home with no down payment, the home purchase price is $100,000. 1% of $100,000 = $1,000. $100,000 + $1,000 = John’s final adjusted loan amount is $101,000.
USDA Annual Fee: Not to be confused with the guarantee fee above, the USDA annual fee is a monthly premium added to the borrower’s monthly mortgage payment (like taxes and home insurance) The current USDA annual fee for 2024 is .35%. and is required on all USDA mortgages. This monthly premium is common for any mortgage program when the buyer is putting less than a 20% down payment.
The annual fee is similar to what most buyers know as private mortgage insurance or “PMI” This monthly cost is paid over the life of the loan. One advantage of the USDA loan is the annual fee is over 50 percent lower when compared to FHA home loans. In addition, monthly PMI costs can be especially high for conventional loan borrowers who finance over 90% and have credit scores under 680.
Example of how to calculate the USDA annual fee: Loan amount is $140,000 x .0035% = $490. $490/ 12 = $40.83 per month is the USDA monthly mortgage insurance amount. Tip: the USDA mortgage calculator found on this page will automatically calculate the mortgage insurance costs based on the buyer’s loan amount.
Please read the USDA Purchase FAQ page above for more helpful information. If you need assistance, please call us, or just submit the Quick Contact form on this page. Mobile users will find the form at the very bottom of this page.
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