The US Department of Agriculture (USDA) offers a residential loan program that helps homeowners with low and middle incomes buy a home in rural and suburban areas. The program is available nationwide and allows new homeowners with good credit to purchase with little to no money down, lowering the barriers for people to buy a home.
What is a USDA Mortgage Loan?
A USDA mortgage loan, also called a Rural Development (RD) loan, is financially backed by the US government and intended to help low- and middle-income buyers purchase land for homes in rural and suburban areas. The loan is provided by a private lender, and the government guarantees the lender repayment of 90% of the funds loaned, even if the buyer defaults on the loan.
How to Qualify for a USDA Loan
To qualify for a USDA loan, both the buyer and the property must qualify.
Buyer eligibility requirements:
- Meet income requirements: The household income must not exceed 115% of the median income for the area around the home. The USDA offers a guide with these limits, or you can go to their web site and see if you qualify.
- The property must be the primary residence: Secondary or vacation homes are not eligible.
- Be a US Citizen, US non-citizen national or Qualified Alien.
- Have the legal capacity to enter into the loan: The buyer must be legally able to sign a contract with the lender.
- Not currently suspended or debarred from participation in federal programs.
- Demonstrate the willingness to make payments in a timely manner.
Property eligibility requirements:
- It must be within certain location limits, usually considered rural or suburban. Property eligibility is ultimately up to the discretion of the USDA, and complete eligibility is determined only upon receipt of an application.
USDA loans can be used for multiple purposes, including:
- The purchase of a new or existing residential property for use as a permanent primary residence.
- Purchasing a site with a new or existing dwelling already on it.
- Repairs and remodeling associated with the purchase of an existing dwelling.
- Refinancing of eligible loans.
- Required design changes or permanent equipment installation to accommodate a household member who has a disability.
- Connection fees, assessments or installment costs for utilities such as water, sewer, electricity, and gas.
- Real estate taxes due on the property at the time of loan closing.
- Hazard and flood insurance premiums.
- Household amenities such as carpeting, ovens, ranges, refrigerators, washers, dryers and heating and cooling equipment as long as it is included with the dwelling.
- Purchasing and installing energy efficiency measures (such as insulation, double-paned glass and solar panels).
- Installing broadband internet service to the house, as long as it is included with the dwelling.
- Site preparation costs, including grading, foundations, plantings, seeding or sod installation, trees, walks, fences and driveways.
Top USDA Loan Providers
New American Funding
Current Interest Rate – 3.25% 30-year fixed rate loan
New American Funding is a national lender headquartered in California that has been in business for 15 years. They are embracing leading-edge technology and have developed their own software that allows them to provide quicker loan closing timelines. Buyers can qualify for a USDA loan with a credit score as low as 580.
Current Interest Rate – not available
Vylla is backed by Carrington Holding Companies, who provide real estate services including mortgages and asset management. Their loan approval process is not available online, so you will need to contact them directly to start the process. However, their website allows you search for a house and a loan at the same time.
Current Interest Rate – 4.25% 30-year fixed rate loan
With Quicken Loans you can complete the online application process with less paperwork and track the status of your application. After closing, the loan is managed online without any hidden fees, and Quicken manages 99% of their mortgages, so there won’t be any additional parties involved after closing.
Current Interest Rate – 4.75% 30-year fixed rate loan
Costco’s lending program is operated by First Choice Loan Services, and works as an agent for several lending companies and will refer you to one of their lenders depending on your needs. Costco membership isn’t required to use their services, but it is strongly recommended as additional discounts are available for members.
Current Interest Rate – 3.5% 30-year fixed rate loan
Guaranteed Rate’s purpose is to give their customers a “low, low rate” on their mortgages with transparent and fair fees, leveraging technology to streamline and simplify the loan process, and providing unmatched service and expert advice to help their clients find the perfect mortgage. Their loan process can be completed completely online, including electronic signatures.
Current Interest Rate – 3.6% 30-year fixed rate loan
SunTrust’s mission is, “Lighting the Way to Financial Well-Being.” They offer an app to help streamline the loan application process that is called SmartGUIDE. Their website is available in Spanish and provides information and resources for those looking to purchase a home or refinance.
Current Interest Rate – not available
Fairway Independent Mortgage Corporation has “funded more than $129.4 billion in loans since the company started and more than $21.8 billion in 2018 alone.” Their app allows you to apply for a loan in 10 minutes and close your loan in as little as 10 days, according to the company. Services include a welcome call to verify your information, give you directions for sending your first payment, and answer any questions you have.
Current Interest Rate – not available
Alterra Home Loans, a Las Vegas company, is dedicated to three things: little things matter, find a better way, and own it. This means they are paying attention to the small details, always improving, and taking responsibility when a mistake is made. They offer a Spanish version of their website and bilingual loan officers. Check availability of their loans as they do not offer loans in every state.
Current Interest Rate – 3.874% 30-year fixed rate loan
Wells Fargo is a leading national mortgage provider and a household name, so you know they have a solid reputation and are not going to disappear overnight. They have had some trouble recently but are working hard to regain the public’s trust. They are committed to fair, responsible lending, and have lots of tools and resources to help you in your search for a home loan.
Current Interest Rate – 3.375% 30-year fixed rate loan
PNC is a national home loan provider that has been in business for over 160 years and can help you assess what type of loan is best in your situation. They offer an online mortgage tracker, but the application process cannot be completed online – a visit or phone call is required. Branches are located only in the eastern and southeastern states.
How Does a USDA Loan Compare to Other Types of Mortgages?
USDA mortgage loan vs conventional 30-year mortgage
A USDA loan has income and location restrictions, so you or the property you are looking to buy may not qualify. Conventional 30-year mortgages are available everywhere.
USDA loans are only good for primary residences. Second homes or rentals are not eligible. Conventional loans can be used to purchase second homes, vacation homes, or rental homes.
These loans require the payment of a guarantee fee at closing and with every monthly payment for all buyers. Conventional loans require private mortgage insurance if you pay less than 20% of the purchase amount for your down payment. You will need to do the calculations to see which will cost you less.
Lenders can offer lower interest rates for USDA-backed loans than for conventional loans due to the backing by the government. Also, no down payment is required with a USDA loan.
USDA mortgage loan vs VA loan
The Veteran’s Administration (VA) provides home loans for eligible veterans and active-duty military personnel.
Because both the VA and USDA programs are backed by the US government, interest rates are lower for these types of loans. VA loans provide 100% government backing, while the USDA backs 90%.
VA loans have a maximum value of $484,350 in most locations, that can be increased to $726,525 in places determined to be high-cost markets. The USDA does not cap the amount of their loans.
USDA loans are the only mortgages that allow closing costs to be added to the loan amount. With VA loans, closing costs must be paid by the borrower, the seller, or the lender and cannot be wrapped up into the loan.
VA loans require payment of a one-time funding fee at the time of loan closing. USDA loans require the payment of a guarantee fee at closing and with every monthly payment. You will need to do the calculations to see which will cost you less.
USDA mortgage loan vs FHA loan
FHA (Federal Housing Authority) loans were created to encourage home buying after the Great Depression.
These two loan types offer similar advantages. Both have low down payment requirements, making them a great option for buyers without a lot of money to put down. Loans are even available with no down payment, if the buyer qualifies.
An FHA loan will require an annual mortgage insurance premium (MIP) payment, regardless of the amount of the down payment, and it also has an upfront fee of 1.75% of the loan amount, which is included in the closing costs and cannot be rolled up into the loan.
FHA loans have relaxed credit requirements when compared to a USDA loan. FHA requires a 500-580 minimum credit score and the USDA has a minimum of 640.
The Impact of .1% change on $10,000
How important is the interest rate in determining how much you will pay for your home? A 0.1% rate difference can mean an additional $200 per $10,000 borrowed over the life of a 30-year loan. That means a savings of about $6,000 on the life of a $300,000 loan. To find out how much you’ll save, use our loan calculator.