Is a USDA Loan Right for You?

Woman feeding dogs in front yard with rural house in background

Loans backed by the Department of Agriculture are available to low- and moderate-income borrowers who want to buy in rural areas. If you are eligible for a USDA loan, you’ll want to understand how they differ from other types of mortgages, as well as their benefits and drawbacks.

Pros and Cons of USDA Loans

Here’s a look at the pros and cons of USDA loans:

USDA Loans: Pros and Cons

ProsCons
— Helps buyers in rural areas become homeowners.
— No down payment minimum.
— Lower mortgage insurance premium.
— Competitive interest rates.
— Multiple ways to pay closing costs.
— Only available in certain locations.
— Income limit.
— Upfront and annual guarantee fees.
— The home must be your primary residence.
— You must be unable to get a conventional loan without private mortgage insurance.

USDA Loans vs. FHA Loans

Because USDA loans and Federal Housing Administration loans both are backed by government agencies, they have different rules and eligibility requirements.

Differences Between USDA Loans and FHA Loans

USDA LoansFHA Loans
— Usually cheaper than FHA loans.
— No down payment requirement.
— Income requirements.
— No credit score requirement.
— Upfront and annual guarantee fees.
— Location restrictions.
— Often more expensive than USDA loans.
Low down payment requirement.
— No income requirement.
— Need a credit score of at least 500.
— Mortgage insurance required.
— No location restrictions.

USDA Loans vs. Conventional Loans

Because USDA loans are backed by the government, the lender’s risk is reduced in the event that the borrower defaults. As a result, USDA loans have more generous eligibility requirements for borrowers, and mortgage lenders can offer lower interest rates compared with conventional loans.

Differences Between USDA Loans and Conventional Loans

USDA loansConventional loans
— No down payment requirement.
— Only available in certain areas.
— Upfront and annual guarantee fees.
— Low down payment requirement.
— No location limits.
— Private mortgage insurance if your down payment is less than 20%.

FAQ: Is a USDA Loan Right for You?

Here are the answers to frequently asked questions about choosing a USDA loan.

How hard is it to get a loan from the USDA?

It depends. There’s a process for how to get a USDA loan. Borrowers have to meet income requirements, and the property itself must qualify for a USDA loan. While the USDA doesn’t enforce a minimum credit score, many lenders will require you to have a credit score of at least 640.
The good news is USDA loans require no down payment, which makes it easier to get a home loan before you’ve saved up for a down payment.

What is the maximum square footage for a USDA loan?

The home you buy will generally need to be 2,000 square feet or less to be eligible.

How long does the USDA take to approve a loan?

You expect the process to take roughly 30 to 45 days from the time you sign the purchase agreement to the time you close on the loan.

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