A USDA guaranteed loan is a government insured 100% purchase loan. This type of loan is only offered in what is considered a rural area. They are serviced by direct lenders that meet Federal guidelines.
USDA loans (US Department of Agriculture) aka Section 502 loans are an excellent mortgage vehicle for those home buyers who do not have money to put down but have decent credit ratings. Typically a credit score over 600 will allow a buyer to secure USDA financing. A score between 580-600 will come under much heavier scrutiny but will not rule out the borrower.
Most people think that 100% financing is a thing of the past due to the mortgage market melt down. While it is hard to get 100% financing, it is not impossible because of the USDA loan.
The USDA loan is typically used to help low to moderate income households purchase homes in rural areas. These loan products are backed by the Federal government. A common obstacle for many folks to owning a home is the lack of down payment funds. The use of a USDA loan makes the reality of home ownership far more reachable to a large percentage of borrowers.
Qualifying for a USDA Loan
In order to qualify for a USDA mortgage loan you can only have an income up to 115% of the median income for the area that the home you are interested in buying is located.
The guidelines also include repayment viability based on P.I.T.I (Principle, Interest, Taxes, and Insurance) divided by gross monthly income being less than 29%. Total debt divided by gross monthly income must also be equal to or less than 41%.
Families applying for the loan must not currently have housing that is adequate. The test of adequacy is based on family size. For example ff a family of five is living in a two bedroom apartment then that is not adequate and they would be eligible for the loan. The home must also be reasonable in size based on the size of the family. You would not be buying an enormous home with a USDA loan!
One of the other great benefits of the USDA loan is that there is no mortgage insurance required. Without the need for private mortgage insurance the borrower can save a substantial amount of money!
In my experience, unless you are in a heavily populated city the definition of rural is pretty loose. Many areas that you may not consider to be rural in your mind may qualify for a USDA loan. Areas that have a population under 20,000 will probably pass the test in most circumstances.
To see if a USDA loan would work for your financing needs it would be smart to check with a qualified mortgage professional. Not all lenders work with these type of loan products as they are more paperwork intense.
For additional information on USDA loans I would suggest visiting the USDA loan website which provides a vast amount of information on this loan product..
If you are located in Massachusetts and want to know if you qualify based on the income limits for a specific area you can visit Massachusetts USDA offices which will provide you with the local income limits based on the county that the property is located in.
If you are located in another state here is the link to the USDA State & local offices.
USDA loan alternatives
If you find that you do not meet the income requirements for a USDA loan another popular choice for a lower down payment loan would be an FHA loan. There are no income restrictions with an FHA loan you will only need to have a 3.5% down payment. For a comparison of conventional mortgage plans to an FHA loan see conventional financing vs FHA loans.
While there have been tremendous changes for the better in the mortgage industry, the media loves to portray the mortgage market as one where borrowers have almost no chance of getting a loan. Doom and gloom unfortunately always seems to sell better than the actual reality of things.
There is no question that mortgage lenders have really tightened their belt and are not lending to anyone that is breathing and walks into their office. There is however, plenty of funding available to those that have a job with a steady income and a decent credit rating. So don’t assume you can not get a loan!
We are currently in one of the most attractive times in our history as far as borrowing money goes. It is rare to see an interest rate environment where rates are so attractive, combined with a significant drop in housing prices we have seen from 2005 to 2010!
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About the author: The above Real Estate information on USDA loans for no down payment financing was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-435-5356. Bill has helped people move in and out of many Metrowest towns for the last 24+ Years.
Thinking of selling your home? I have a passion for Real Estate and love to share my marketing expertise!
I service the following towns in Metrowest MA: Hopkinton, Milford, Southboro, Westboro, Ashland, Holliston, Medway, Franklin, Framingham, Grafton, Hopedale, Mendon, Upton, Northbridge, Shrewsbury, Northboro, Bellingham, Uxbridge, Worcester and Douglas.
News, views, opinions and happenings for Real Estate throughout Metrowest Massachusetts and beyond including Ashland, Hopkinton, Holliston, Southboro, Westboro, Milford, Medway, Franklin, Grafton, Upton, Mendon, Hopedale, Northboro, Framingham, Northbridge, Shrewsbury, Whitinsville, Uxbridge, Bellingham and Douglas. 
{ 11 comments… read them below or add one }
Bill: Is the USDA program out of the woods on their funding? I thought I was hearing news that this program was either closing off or had a temporary lack of funding in it. I was reading this throughout the 2nd half of last year, but have not heard about it recently. Some towns have agents that talk about the USDA financing in all of their listings, so it is still really popular in some of our Metrowest Boston towns I believe. Great information.
Hi Ed – Currently the government has not extended the program but they expect to come August. There are a couple of local lenders that I know that have private investors that will fund a USDA loan.
Hi Bill,
Great explanation of the USDA program. It can be used as financing for some properties on the outskirts of the Twin Cities too.
Thanks Teri! The USDA loan is great for a strong borrower that just has not saved enough for a down payment or would rather use their funds elsewhere.
An agent in my office just did a deal with USDA funding. He was as surprised by it as I was him telling me. It was a townhouse. A relatively rural area, but a townhouse nonetheless.
John there are so many folks that do not know about USDA loans. Most people assume you can not get 100% financing anymore. The USDA loan is an excellent program for qualified borrowers.
Hi Bill – I just got word that a lender here in my county is able to fund some rural housing loans. I’m going to write a post about this tomorrow. Great information!
Lisa – The USDA loan is becoming more an more popular as a program for those borrowers with a strong credit history but not much money to work with.
Great information Bill. We are liscensed and funding USDA here in Florida if anyone needs more specific information or an expert at working with those who need to build their credit to qualify for the USDA RH loan. Regards
My loan officer is telling me there is no way I can get a USDA loan (the guaranteed one, not direct) since funding has run out and I have to get FHA. Is this true?! I have other people I know who are getting their USDA loans funded and I do NOT want to go FHA since our out-of-pocket costs would be higher as well as our payment.
Monica – The loan officer is telling you the truth although there are rumors floating around that the USDA loan financing could be restored at anytime.