USDA loans: What is the process?

Tim Lucas
The Mortgage Reports editor

100% financing USDA loans

The USDA loan is getting more attention these days.

Once an obscure program, it is now the loan of choice for home buyers that might have gone with FHA. USDA might be the better deal.

Whereas FHA requires 3.5% down, USDA requires no down payment whatsoever.

Plus, mortgage insurance is cheaper and rates often lower.

But many home buyers wonder how these loans work. Do they have to find a government USDA office to apply?

Fortunately, getting a USDA loan is a lot like getting any other loan.

Verify your USDA loan eligibility (Sep 21st, 2021)

How a USDA loan works

These loans are backed by the United States Department of Agriculture (hence the name) to promote economic development in less-dense areas of the U.S.

When people own homes, they purchase home-related goods and services and tend to stay in the neighborhood longer. Homeownership stabilizes the local economy and community.

But getting this government-sponsored loan doesn’t mean you have to search out a government office to apply. Lenders around the country are endorsed by USDA to approve these loans.

If you can get an FHA loan or conventional financing at a certain lender, chances are it offers USDA as well.

Here’s a brief overview of the process and how long each step takes:

  1. Apply with a USDA-approved lender (30 minutes)
  2. Supply the lender with income, asset, and credit information (1 day)
  3. The lender issues a pre-approval (3 days to 1 week)
  4. You find a home in a USDA-eligible geographic area (timing depends on the home market)
  5. The lender checks the appraisal and any other items needed (1 week)
  6. The lender sends the file to your state’s USDA office for approval (1 day)
  7. The USDA office completes a final “sign-off” (a few days to a few weeks)
  8. The lender sends closing documents to the escrow company, which you sign (1 week)
  9. The loan is finalized and the house is yours (3 days)

To the applicant, getting a USDA loan will “feel” just like getting any other mortgage.

Apply with a USDA-approved lender here. (Sep 21st, 2021)

Allow extra time for your USDA loan process

There is only one extra step in getting this loan compared to any other loan type. That is the extra check by a USDA office in your state. This is completely handled by your lender.

With an FHA, VA, or conventional loan, the lender can completely approve and close the loan on its own. USDA, however, requires a hands-on check by USDA staff.

The process can take an extra few days or up to three weeks or more depending on the backlog at your state’s USDA office.

Check with your lender before agreeing to a closing date. The lender should know how long your local USDA department currently takes for final sign-off. Don’t be unrealistic about your closing date.

Armed with a probable timeline, you can be a homeowner in a suburban or rural neighborhood with zero down and almost no extra hassle compared to any other loan type.

Check your USDA eligibility

USDA loans are the best-kept secret in mortgage lending today. Those who discover it quickly realize that it’s likely better than FHA or conventional.

The loan does come with income and geographic eligibility standards, though. The best way to get started is to get a USDA rate quote, which comes with a full eligibility check by a USDA lender.

Check your USDA loan eligibility with an approved lender. (Sep 21st, 2021)