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What is a USDA Home Loan?

The USDA Rural Development Home Loan is a flexible zero down payment government guaranteed program that is growing in popularity. It is designed to promote homeownership in rural communities for residents with low to moderate incomes and limited savings for a down payment. A common misconception about the USDA loan program is that it is only for farmers. You will find that just outside most metropolitan areas there are many suburban neighborhoods that qualify for this program.

Which Types of Loans Does the USDA Offer?

The Section 502 Guaranteed Loan is the most common type of USDA rural housing loan. Amazingly, this loan will actually lend up to 102.04% of the home's appraised value and even allow the buyer to include closing costs in the actual loan (appraisal permitting). All USDA Guaranteed Loans carry a 30-year term with a low fixed rate.

Are USDA Home Loans Credit Flexible?

USDA Home Loan requirements are not entirely credit score driven, although RanLife Home Loans requires a 640 mid-score or better, USDA Home Loan guidelines will disregard some derogatory credit marks provided there is an acceptable explanation.

What is the Maximum Amount That I Can Borrow?

Applicants may never borrow more than the Area's Loan Limits. Talk to a RanLife USDA Specialist to learn the limit in your area.

Which Types of Homes are Eligible for Financing?

The home must be owner occupied (no investment properties). All single family houses, condos, and planned unit developments e.g. townhomes, are eligible. Modular homes ARE eligible, but NO MANUFACTURED OR MOBILE HOMES.

Which Factors Determine if I am Eligible for a USDA Home Loan?

To qualify for this loan program, there are two notable requirements that differentiate this program from an FHA or VA loan program.

  1. Location: The home must be located in a designated rural area.
  2. Income Limits: Occupants must meet USDA adjusted annual household income limits--a maximum of 115% of the median income for your area--meaning your total combined household income cannot be more than this amount. If your income is slightly over these amounts, there are little known deductions that can be used to reduce your qualifying gross household income and help you qualify. Such as:
    • Disabled or handicapped individuals who are not the applicant or co-applicant.
    • Documentable childcare expenses for children 12 years of age or older.
    • Documentable medical expenses for family members 62 years of age or older.
    • Attendant care expenses.
    • A deduction for each child under the age of 18 and/or a full-time student over the age of 18.
Do USDA Home Loans Require Down Payment?

USDA RD Home Loans have no down payment requirement. FHA requires 3.5% down and conventional loans require 3% down.

Qualifying Income: It is important to note that the USDA uses two types of income for qualifying.

  • Household income is the combined adjusted gross income of all people living in the home, even if they are not on the home loan application. This amount cannot be higher than the county limits.

  • Repayment income is income from the actual loan applicants and determines the DTI (debt-to-income) ratio. Deductions can be made for each child under the age of 18 and/or full-time student over the age of 18.