USDA home loans are one of the least-known — but most powerful — home buying options in today’s market. These loans require zero down payment. That means you can buy a home even though you don’t have a lot of money saved up. USDA loans also come with ultra-low rates and low credit score minimums.
Verify your USDA loan eligibility (Oct 19th, 2019)*You could save up to $3,000 in interest payments by comparing rates from multiple lenders
Request RatesUSDA loans are typically available to those who meet the following qualifications:
These are general guidelines, however, and home shoppers should get a full qualification check and pre-approval letter from a USDA lender. Many buyers are eligible, but don’t know it yet.
Verify your USDA loan eligibility (Oct 19th, 2019)The above USDA mortgage calculator details costs associated with USDA loans or with home buying in general. But many buyers don’t know why each cost exists. Below are descriptions of each cost.
Principal and interest. This is the amount that goes toward paying off the loan balance plus the interest due each month. This remains constant for the life of your fixed-rate loan.
Property tax. The county or municipality in which the home is located charges a certain amount per year in taxes. This cost is split into 12 installments and collected each month with your mortgage payment. Your lender collects this fee because the county can seize a home if property taxes are not paid. The calculator estimates property taxes based on averages from tax-rates.org.
Homeowners insurance. Lenders require you to insure your home from fire and other damages. This fee is collected with your mortgage payment, and the lender sends the payment to your insurance company each year.
HOA/other. If you are buying a condo or a home in a Planned Unit Development (PUD), you may need to pay homeowners association (HOA) dues. Lenders factor in this cost when determining your ratios. (See an explanation of debt-to-income ratios above). You may put in other home-related fees such as flood insurance in this field, but don’t include things like utility or maintenance costs.
USDA mortgage insurance. The agency charges an annual fee which is paid in 12 equal installments along with the mortgage payment. The fee is equal to 0.35% of the loan amount per year. The fee is much lower than FHA mortgage insurance or even most conventional PMI rates.
Upfront USDA fee. The USDA charges an upfront fee which is rolled into the loan amount. The amount of the fee is currently 1.0% of the loan amount. The fee goes to USDA to defray the costs of running the program. The agency is able offer these loans at discounted rates and down payments in part because of this fee.
Loan term. The number of years it takes to pay off the loan (assuming no additional principal payments). USDA loans come in 30- or 15-year options.
Down payment. This is the dollar amount you put toward your home cost. USDA requires no down payment, but buyers can make a down payment if they desire. Down payments can come from a down payment gift or eligible down payment assistance program.
Interest rate. The mortgage rate your lender charges. Shop at least three lenders to find the best rate.
About 97% of U.S. land mass is eligible for a USDA loan. Many suburban as well as rural neighborhoods qualify. If you are buying outside a major city, it’s worth checking into your area’s USDA eligibity status.
Learn more about eligible geographic areas here.
Learning about USDA loans is easy. See our USDA loan guide for everything you need to know about the program. Additionally, see our other articles on this powerful loan program.
Home buyers — if they have heard of the program at all — assume USDA loans are only for farms or homes that are too far removed from civilization.
On the contrary, USDA mortgages are for regular homes in the suburbs.
Check your eligibility, and become a homeowner sooner than you thought possible.
Verify your USDA loan eligibility (Oct 19th, 2019)
Sources:
Property tax averages: http://www.tax-rates.org/taxtables/property-tax-by-state
USDA fees: https://www.rd.usda.gov