Demystifying the USDA 33-Year Mortgage: Everything You Need to Know

The USDA 33-year mortgage loan is an attractive option for many homebuyers, especially first-time buyers. With a lower monthly payment and relaxed lending guidelines, it can help those with limited funds buy a home sooner.

But this unique loan product also comes with specific requirements and limitations. Use this comprehensive guide to fully understand how the USDA 33-year mortgage works.

What Is a USDA 33-Year Mortgage?

The United States Department of Agriculture (USDA) offers several mortgage programs to help low-to-moderate income buyers in rural areas finance a home.

One of these is a 33-year mortgage, which is different than the standard 30-year home loan. It comes with a longer repayment term that results in a lower monthly payment.

This helps buyers afford a higher loan amount and nicer home than they otherwise could, with 3 extra years to pay it off

Key Features:

• 33-year repayment term
• Fixed interest rate
• No down payment required
• Low mortgage insurance premiums
• Relaxed credit guidelines
• For rural properties only

The 33-year mortgage has the same features and requirements as the USDA 30-year loan, The only difference is the extended term that lowers the monthly payment

USDA 33-Year Mortgage Calculator

Because this loan has a unique 33-year term, you can’t use a standard mortgage calculator to estimate the monthly payment.

Specialized USDA loan calculators will properly account for the longer timeframe.

They also factor in all the associated fees and mortgage insurance costs.

For example, here are the payment estimates on a $300,000 USDA 33-year mortgage at 6.5% interest:

• Principal & Interest: $1,491
• Mortgage Insurance: $105
• Estimated Taxes & Insurance: $833
• Total Monthly Payment: $2,429

Compare that to a $300,000 USDA 30-year mortgage at the same rate:

• Principal & Interest: $1,672
• Mortgage Insurance: $105
• Estimated Taxes & Insurance: $833
• Total Monthly Payment: $2,610

That’s an extra $181 in your pocket each month with the 33-year loan!

Use an online USDA 33-year mortgage calculator to estimate your own monthly payments.

USDA 33-Year Mortgage Requirements

To qualify for a USDA 33-year mortgage, you must meet all the standard eligibility guidelines:

Income Limits

Your household income must be below the limit set for your county. View the USDA income eligibility map to check.

Credit Score

Most lenders require a minimum credit score of 640. But it’s possible to qualify with a score as low as 580 with strong compensating factors.

Debt-to-Income Ratio

Your total monthly debt payments (including the new mortgage) should not exceed 41% of your gross monthly income.

Location Requirements

The home you buy must be located in an eligible rural area as defined by the USDA property eligibility tool. You can check specific addresses here.

Occupancy Requirements

You must plan to use the home as your primary residence and move in within 60 days of closing.

First-Time Homebuyer Rule

If you owned a home in the past 3 years that you occupied as your primary residence, you must meet special requirements to qualify.

Homebuyer Education

All USDA borrowers must complete an approved homebuyer education course prior to closing. Many are available online.

Seller Contributions

The seller can only pay up to 6% of the purchase price towards your closing costs and prepaids. And none of it can be used for your down payment.

How to Get a USDA 33-Year Mortgage

If you meet all the eligibility criteria, follow these steps to get a USDA 33-year mortgage:

1. Find a USDA-Approved Lender

   Work with a lender who participates in the USDA program. This ensures they can properly underwrite and process the unique loan.

2. Apply for Preapproval

   Get preapproved for financing before you start house hunting. This gives you a price range and lets sellers know you’re a serious buyer.

3. Make an Offer / Negotiate Terms

   Once your offer is accepted, move into the escrow period to work out the transaction details and get your USDA loan fully approved.

4. Close on Time

   Finalize all paperwork, sign documents, then receive the keys once the sale records!

Pros and Cons of USDA 33-Year Mortgages

As with any mortgage product, the USDA 33-year loan has both advantages and disadvantages:

Pros

• Lower monthly payments
• 100% financing available
• Very low mortgage insurance
• More flexible credit guidelines
• May buy more house for your budget

Cons

• Higher total interest costs
• Limited to rural locations
• Must meet income eligibility
• Potentially more competition from other buyers

Make sure you fully weigh the pros and cons before choosing your mortgage program. A loan officer can help explain which option best fits your homebuying goals and financial situation.

Alternatives to the USDA 33-Year Mortgage

While the USDA 33-year mortgage is a great program, it’s not the only option. Here are two alternatives to consider:

FHA Loan

FHA loans only require 3.5% down and are available everywhere, not just rural areas. But they charge more mortgage insurance.

USDA 30-Year Mortgage

The regular USDA 30-year mortgage has a higher monthly payment. But the overall interest costs are lower than the 33-year loan.

Talk to an experienced loan officer to go over all your choices in detail. They can guide you towards the optimal mortgage product.

The Bottom Line

The USDA 33-year mortgage gives qualified buyers a lower monthly payment and more time to pay off the loan. This helps stretch your budget to afford a nicer home than a 30-year loan may allow.

Just be sure to use a USDA 33-year mortgage calculator to estimate your payment accurately. And fully understand the specific USDA mortgage requirements before applying.

With proper planning and preparation, the USDA 33-year loan can be your ticket to homeownership if you don’t have much cash available for a down payment. Consult a lender to find out if it’s the right fit for your situation.