How USDA Loans Work

USDA loans, also known as rural development loans, are backed by the U.S. Department of Agriculture and provide affordable mortgage options for homes in rural areas than other loans do.

If you’re buying a home, you can get a USDA loan as a 30-year fixed-rate mortgage. If you already have a USDA loan, you can refinance it into a new USDA loan; however, you can’t refinance with a USDA loan if you currently have a different loan type.

USDA Loan Eligibility Requirements:

• No down payment
• Your credit score must be at least 640.
• Your debt-to-income ratio (DTI) must be 43% or lower.
• The property must be in an eligible rural area. Find out if your property is eligible.
• The property must not be a working farm.
• Your household income, which includes everyone in the home, must not exceed 115% of the area median family income. Check your income eligibility with the USDA.

Understanding the USDA Guarantee Fee

USDA loans require an upfront guarantee fee and an annual guarantee fee, similar to upfront mortgage insurance and monthly mortgage insurance for FHA loans. These guarantee fees are generally lower than mortgage insurance premiums for FHA and may save you money on your monthly mortgage payment.