USDA Loans for Single Mothers

Buying a home on a single income can feel daunting, but the USDA loan program makes it more achievable for certain borrowers. USDA loans are designed to help low- to moderate-income families in rural and select suburban areas.

If you qualify, you can buy a home without a down payment and with competitive interest rates. Let’s look at how USDA loans work, who qualifies, and other options available to single moms looking to buy a house.

USDA loans for single mothers

The U.S. Department of Agriculture backs USDA loans to encourage homeownership in rural communities. Here are some of the biggest benefits of USDA loans:

• No down payment requirements: One of the biggest benefits of USDA loans is that they don’t require a down payment. The ability to finance up to 100% of the home purchase can free up money for moving expenses and other costs.
• Competitive interest rates: Because the government backs USDA loans, it lowers the risk for the lender, allowing them to offer competitive interest rates. A low interest rate makes your monthly payments more affordable and can save you thousands of dollars over the life of the loan.
• Flexible credit requirements: USDA loans don’t have strict credit requirements, though most lenders look for a minimum score of 620.
• No PMI: Unlike other loan programs, USDA loans don’t require private mortgage insurance (PMI). PMI is usually required anytime a borrower makes a down payment of less than 20%. Eliminating PMI can also lower your monthly mortgage payments.

No prepayment penalties: The USDA explicitly prohibits prepayment penalties, which are a fee your lender charges for paying off your loan early. That means you can pay off your mortgage early without any financial penalties.

USDA loan requirements

Although there are many benefits to USDA loans, they aren’t available for all borrowers. Here’s the criteria you’ll need to meet in order to qualify as a single mom:

• Location: To qualify, the home must be located in an eligible rural area, and you can check the property’s eligibility using the USDA’s online map. Fortunately, the USDA’s definition of rural is fairly broad, and many suburban areas qualify as well.
• Income limits: USDA loans are designed for low- to moderate-income borrowers. Your household income typically can’t exceed 115% of the median income for your area, adjusted for your family size. You can use the USDA’s website to determine the requirements for your state and county.
• Credit and debt: Most lenders require a minimum credit score of 620 or higher and a maximum debt-to-income (DTI) ratio of 41%. However, the exact requirements will vary depending on your lender.
• Primary residence requirement: You must use the property as your primary residence, which means you live there for the majority of the year. That means you can’t take out a USDA loan to buy an investment or vacation home.
• Property condition: The home must be safe, structurally sound, and meet basic livability standards. A USDA appraisal is required to ensure the property meets these guidelines.

Applying for a USDA loan as a single mother

Because USDA loans require approval from both your lender and the USDA, the process can take slightly longer than a conventional loan. Here’s what the process looks like:

1. Verify your eligibility: Start by confirming that both your income and the property location meet USDA requirements.
2. Find a USDA-approved lender: Not all mortgage lenders offer USDA loans, so look for one experienced with the program.
3. Get preapproved: Gather any necessary documents like pay stubs, W-2s, and tax returns to get preapproved with your lender. Getting preapproved shows you the type of home you can afford to buy.
4. Shop for eligible homes: Work with a real estate agent familiar with USDA guidelines to find eligible homes within your price range.
5. Underwriting and closing: Once you’ve made an offer, your lender will order a USDA appraisal and verify your income, credit, and DTI ratio. Once you’ve been approved, you’ll move toward closing and officially become a homeowner.

USDA mortgage alternatives for single mothers

If a USDA loan isn’t the right fit, here are a few other loan programs for single moms to consider:

• FHA loans: FHA loans are ideal for borrowers with poor credit or minimal savings. FHA loans allow for down payments as low as 3.5% with a 580 credit score.
• VA loans: If you’re a veteran, active-duty service member, or surviving spouse, VA loans come with no down payment requirements, no PMI, and competitive rates.
• Down payment assistance programs: Many state and local programs provide grants or forgivable loans to help with closing costs or down payments.

The bottom line USDA loans for single mothers

Home loans for single moms can make homeownership possible thanks to their flexible requirements. With no down payment, no PMI, and lenient credit standards, USDA loans open doors for single-parent families across the country. Before applying, take some time to compare lenders and research additional programs in your area.