Who Qualifies for a USDA Loan?

If you’re looking to buy a home in a rural area, you may be wondering if you qualify for a USDA loan . Here’s what you need to know.

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General Qualifications

In order to qualify for a USDA loan, you must meet a few general qualifications. These qualifications include having a decent credit score, being a U.S. citizen, and having a steady income. We’ll break down each of these qualifications in more detail below.

Must be a U.S. citizen or permanent resident alien

To obtain a USDA loan, you must be a U.S. citizen or permanent resident alien and meet certain income and investment guidelines. You must also be:

-Able to demonstrate a history of creditworthiness
-Able to afford the monthly mortgage payments, including taxes and insurance
-Able to pay the upfront USDA guarantee fee
-Interested in purchasing a home in an eligible rural area

Must have a steady income

In order to qualify for a USDA loan, you must have a steady income that is not derived from farming or agricultural work. This means that you must be employed in a non-farm job or have some other form of reliable income, such as Social Security benefits, child support payments, or alimony. Your income must be low enough to fall within the USDA’s guidelines for your area, but it cannot be zero.

Must be employed for at least 24 months

In order to qualify for a USDA loan, you must be employed for at least 24 months. Your employment does not need to be with the same employer, but you must show a steady work history. This requirement is in place to ensure that you have a steady income that can be used to repay your loan.

Loan Specific Qualifications

The United States Department of Agriculture (USDA) offers a loan program known as the USDA Rural Development Guaranteed Housing Loan Program, which is more commonly known as a USDA loan. This program is designed to help rural homeowners obtain financing with reasonable terms and rates. In order to qualify for a USDA loan, there are loan-specific qualifications that must be met.

Must have a credit score of 640 or higher

If you want to qualify for a USDA loan, you must have a credit score of 640 or higher. This is the minimum credit score required by the USDA in order to guarantee the loan. If you have a credit score below 640, you may still be able to qualify for a USDA loan, but you will need to provide a larger down payment.

Must have a debt-to-income ratio of 41% or lower

Your debt-to-income ratio is all your monthly debt payments divided by your gross monthly income. This includes things like credit cards, car / student / personal loans, and housing expenses. Your housing expenses are further broken down into two ratios known as the “front-end ratio” and the “back-end ratio.”

The front-end ratio is made up of your total monthly housing costs, which includes principal, interest, taxes, insurance (PITI), homeowner’s association dues (HOA), and any other monthly cost associated with owning a home. This number is then divided by your gross monthly income to come up with a percentage.

The back-end ratio is simply all your monthly debts divided by your gross monthly income. This number comes in handy when a lender is trying to determine how much of a risk you are. After all, the higher your debt is in comparison to your income, the higher the chance you will default on your loan.

Must have a steady income

Your income must meet certain guidelines in order to qualify for a USDA loan. The USDA looks at your entire household income, not just your personal income, so all sources of income for every member of your household will be considered when determining if you qualify for a USDA loan.

In order to qualify, your household income must be less than 115% of the median income for the area in which you wish to purchase a home. To get an idea of what median incomes are in your area, you can look up median incomes by county here: https://www.rd.usda.gov/programs-services/household-income-limits/114h

There are some exceptions to the 115% rule. If you are purchasing a home in a designated “rural targeted area” or “rural tract”, the USDA allows your household income to be up to 135% of the median income for that area. You can use this tool to see if the area you are interested in purchasing a home in qualifies as a “rural targeted area” or “rural tract”: https://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do

There is also an exception for certain households with extremely low incomes (less than 50% of the median income for the area). These households may still qualify for a USDA loan if they meet certain other requirements.

Must be employed for at least 24 months

In order to qualify for a USDA loan, you must be employed for at least 24 months. This is a standard requirement for any type of loan.

Property Specific Qualifications

The U.S. Department of Agriculture (USDA) Rural Development program offers loans directly to low-income families, and though many people think the loans are only available to farmers, that’s not the case. If you’re looking for a USDA loan, you’ll first need to ensure that the property you’re interested in qualifies.

Must be located in a USDA-eligible area

To be eligible for a USDA loan, you must purchase a home in a designated rural area. The USDA’s maps designate these areas as “rural” based on population size, and they change periodically. You can check the current USDA-eligible areas here. If you want to buy a home in an area that is not currently eligible, you may still be able to do so if the area becomes eligible in the future. In addition, some properties located just outside of eligible areas may still qualify.

Must be a single-family home, townhome, or eligible condo

Single-family homes, townhomes, and eligible condominiums are all eligible for USDA loans. The home you want to purchase must fall within the USDA’s geographical boundaries, which most notably excludes any major metropolitan areas. If you have your sights set on a home in the suburbs, though, you should still check the USDA website to ensure that the home is within boundaries. You can also contact a USDA-approved lender in your area to ask about specific properties.

Must be your primary residence

To qualify for a USDA loan, your home must be your primary residence. This means that you must live in the home as your main residence and cannot use it as a second home or an investment property. The USDA does not provide loans for second homes or investment properties.

Income Qualifications

To qualify for a USDA loan, you must not make more money than is allowed by the USDA’s household income limits. The income limits vary by county and family size. You can look up the income limits for your county here. If your household income is above the USDA income limits, you do not qualify for a USDA loan.

Must have a household income at or below the USDA median income for the area

In order to qualify for a USDA loan, you must have a household income that is at or below the median income for the area. The median income for a family of four in the United States is $78,200, so if your household income is at or below this amount, you will likely qualify for a USDA loan.

Miscellaneous Qualifications

Salesperson, business owners, and partners in a business can all qualify for a USDA loan if they meet the income requirements. The business must also be a for-profit enterprise that is located in a designated rural area. The rural area must have a population of less than 10,000 people.

Must not have been suspended or debarred from participating in federal programs

In order to qualify for a USDA loan, you must not have been suspended or debarred from participating in federal programs. This means that you cannot have been found to have committed fraud or other serious offenses in connection with any federal program.

Must not have been convicted of a felony within the last 12 months

An ineligible conviction is any felony conviction for which the sentence, including any period of probation, imprisonment, or both, was completed within the last 12 months from the date the USDA receives the lender’s loan note guarantee application.

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