The Benefits Of The USDA Mortgage Loan

The USDA mortgage is popular among first-time home buyers nationwide -- or, at least, among buyers who know the program exists.

USDA loans offer 100% financing, reduced mortgage rates, and a smaller mortgage insurance payment than you'd make via other, comparable low-downpayment loans.

Let's look at each of the benefits separately.

First, via the USDA home loan program, you can buy a home with no down payment whatsoever. The USDA loan is only one of two mortgage programs which allows for no money down loans.

The other is the VA mortgage, available to military borrowers only.

As a USDA mortgage borrower, you don't have to borrow 100% of the home purchase, but you can. Your down payment can be as large or as small you want.

Second, home buyers using the USDA mortgage program get access to lower mortgage rates than the general population.

USDA mortgage rates are often the most aggressive of today's mortgage rates, and can be as much as 40 basis points (0.40%) below the rates for a comparable conventional mortgage.

Third, because USDA mortgages are guaranteed by the U.S. Department of Agriculture, they offer reduced mortgage rates as compared to other low-downpayment loans.

The mortgage insurance rates on a 30-year fixed-rate USDA loan are less than half of what you'll see with FHA mortgage insurance"]; and can be as much as two-thirds less than the private mortgage insurance rates with a conventional mortgage.

Together, this means that USDA loans are cheaper than its competition, and require less money down.

Verify your USDA loan eligibility (Mar 9th, 2018)

The Benefits Of The USDA Mortgage Loan

The USDA mortgage is popular among first-time home buyers nationwide -- or, at least, among buyers who know the program exists.

Qualifying For The 100% USDA Mortgage

To qualify for a USDA mortgage, a home buyer will follow the same approval steps as with any other mortgage loan type.

For example, income will be verified using W-2s, pay stubs, and (sometimes) federal income tax returns; savings will be verified using bank statements and investment account reports; and, monthly debts will be verified using the information pulled from a recent credit report.

Proof of employment and citizenship are verified as well.

Beyond these basics, though, which are required with all purchase home loans, the 100% USDA mortgage program requires several additional verifications.

The first additional verification is linked the property, itself.

USDA mortgages are only available in areas of low-density of population. This means that you cannot use the USDA mortgage to purchase a condominium in a city. However, you can use the program in areas considered rural, and throughout many U.S. suburban neighborhoods.

97% of the United States is USDA-eligible via the "density standard".

The second additional verification is linked to household income.

The USDA mortgage program is meant for households of modest income only, and the USDA varies its definition of "modest income" by U.S. county and size of household.

Here is an example of how the USDA income limits vary by location and size of household:

  • Modest income for 2-person household in Cincinnati, OH: $82,000
  • Modest income for 5-person household in Los Angeles, CA: $129,600

You can use this USDA Income Limit Lookup to check your household eligibility.

And, lastly, the USDA will verify that home you're about to purchase will be a primary residence for you; and that the home is a single-family residence (i.e. not a multi-unit home or a condominium).

USDA loans cannot be used for second homes, vacation properties, or for rentals. You must live in the home you're purchasing and financing.

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