Best USDA Loan Rates of 2020

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Point of Interest

USDA home loans may help some home buyers in more rural and suburban areas get into a home without the need for a down payment. The best USDA loan providers know all the ins and outs of the federally backed program and are willing to work with buyers with less than great credit profiles.

If you’re looking to buy a home with a mortgage in a rural or suburban area, it would be wise to check out whether you have the option for a US Department of Agriculture (USDA) residential loan. The USDA residential loan program was put in place by the federal government to help potential homeowners with low- and middle-range incomes purchase homes in rural and suburban areas, and it offers a ton of perks to those who qualify.

The USDA loan program is available nationwide and makes it simple for new homeowners with fair to good credit to purchase a home with little to no money down and a low interest rate that does not change based on your credit score. The goal of the program is to remove some of the barriers in place that making purchasing a home inaccessible. This type of mortgage is a great alternative to conventional loans if you want to buy a home in a rural or suburban area but your credit isn’t perfect.

 

10 Best USDA Loans Rates of 2020

  • New American Funding – Best for low credit scores
  • Vylla – Best for combining with home search
  • Quicken Loans – Best for rate monitoring
  • Costco – Best for current members
  • Guaranteed Rate – Best for customer satisfaction
  • SunTrust – Best for application options
  • Fairway – Best for fast application
  • Alterra – Best for Spanish-speaking customers
  • Wells Fargo – Best for lender reputation
  • PNC – Best for online pre-approval

New American Funding – Best for low credit scores

Current Interest Rate – 3.07%

New American Funding is a national lender headquartered in California that has been in business for 15 years. It is embracing interesting bleeding-edge technology and has developed its own software that allows them to provide quicker loan closing timelines. Buyers can qualify for USDA loans with a credit score as low as 580. Getting a quote through New American Funding is easy either through phone or through the company’s streamlined online portal.

Vylla – Best for combining with home search

Current Interest Rate – 3.07%

Vylla is backed by Carrington Holding Companies, who provide real estate services including mortgages and asset management. Prospective buyers can use the Vylla website to begin a loan application or search for loan terms that match the desired monthly payment or home price. You will need to provide some of your contact information to begin the process. Vylla also offers the ability to search for homes through its website, which may further streamline the purchase process for you.

Quicken Loans – Best for rate monitoring

Current Interest Rate – 3.07%

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. Email rates are competitive compared to the rest of the industry. The company also has a free service to sign up for weekly rate updates and an alert when rates drop.

Costco – Best for current members

Current Interest Rate – 3.07%

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. These discounts go up depending on the level of membership you have with Costco.

Guaranteed Rate – Best for customer satisfaction

Current Interest Rate – 3.07%

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.

According to the company’s website, most lenders require a 620 minimum credit score for approval. However, the company follows this by stating that each case is unique, which could mean people with lower credit scores may be able to get approval through Guaranteed Rate. Additionally, the company says that 96% of previous customers would be willing to recommend the company to their friends and family.

SunTrust – Best for application options

Current Interest Rate – 3.07%

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. You can apply for a USDA loan through SunTrust by going to the bank’s websites, calling to speak to a loan officer, or going into a branch location.

Fairway – Best for fast application

Current Interest Rate – 3.07%

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. You can also apply for a loan from Fairway at any of the 400+ locations throughout the nation.

Alterra – Best for Spanish-speaking customers

Current Interest Rate – 3.07%

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. The company is licensed to do business in 34 states and has offices in 19 of those states.

Wells Fargo – Best for lender reputation

Current Interest Rate – 3.07%

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.

PNC – Best for online pre-approval

Current Interest Rate – 3.07%

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. That being said, pre-approval can be completed digitally within minutes from the bank’s website.

Lender30-Year APR15-Year APRMinimum Credit ScoreMinimum Down Payment
New American Funding3.07%NA580$0
Vylla3.07%NANot listed$0
Quicken Loans3.07%NA640$0
Costco3.07%NANot listed$0
Guaranteed Rate3.07%NA620$0
SunTrust3.07%NANot listed$0
Fairway3.07%NANot listed$0
Alterra3.07%NANot listed$0
Wells Fargo3.07%NANot listed$0
PNC3.07%NANot listed$0

*Rates accurate as of July 2nd, 2020

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.

When to use a USDA loan

  • 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.

USDA loan vs 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 0.1% 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.

The final word

USDA loans can provide affordable funding for prospective homebuyers who meet the eligibility criteria and are looking to purchase a home in a preapproved area. If a USDA loan is not a great fit, you always have the option of looking into other specialized borrowing products like FHA loans and VA loans. If you’d like to see what your potential payment would be with USDA loans, a mortgage calculator can help.