Buying a home is an exciting milestone but it can also be a complicated and stressful process. Securing financing is one of the biggest hurdles for many homebuyers especially for those with limited funds for a down payment or less-than-perfect credit. If you’re a first-time homebuyer in Indiana struggling to get approved for a mortgage, a USDA home loan may be the ideal solution.
What is a USDA Home Loan?
USDA home loans, also known as Section 502 direct loans, are 100% financing mortgages issued by the United States Department of Agriculture (USDA) Rural Development office. Designed to help low-to-moderate income buyers in rural and suburban areas become homeowners, these government-backed loans require no down payment and are an excellent option for those who can’t afford traditional 20% down mortgages.
In addition to no down payment. USDA home loans offer
- Low fixed interest rates
- Low mortgage insurance costs
- Flexible credit score requirements
- No maximum income limits
- No first-time homebuyer requirement
USDA loans can be used to purchase an existing home or newly constructed house. You can also use a USDA loan to refinance an existing mortgage or make health and safety repairs to your home.
USDA Home Loan Requirements
To qualify for a USDA home loan in Indiana, you must meet certain eligibility criteria:
Location
The home you wish to purchase must be located in a USDA-designated rural or suburban area. The USDA has an eligibility map you can use to check if a specific property qualifies. Generally, small towns and unincorporated communities are eligible locations.
Income
Your household income must be below the income limit set for your county. These limits range from $60,000 to $108,000 depending on household size and where you live.
Credit Score
The USDA has no minimum credit score requirement, but most lenders prefer scores of 640 or higher. The USDA will consider your entire financial picture, so a poor credit score won’t necessarily disqualify you.
Debt-to-Income Ratio
Your total monthly debt payments (including the new mortgage) must not exceed 29% of your gross monthly income. A ratio between 29-41% may be allowed if you can show a history of on-time payments.
Citizenship
You must be a U.S. citizen, U.S. non‐citizen national, or Qualified Alien.
How Do USDA Loans Work?
USDA home loans function much like any other mortgage with a few key differences:
No Down Payment
100% financing means you can qualify without any down payment. However, you may make a down payment if desired. This reduces the amount you have to borrow and lowers your monthly mortgage payments.
Closing Costs
Closing costs may be rolled into your loan amount, eliminating upfront costs at closing.
Mortgage Insurance
A 1% upfront guarantee fee and 0.35% annual fee is charged for mortgage insurance instead of monthly PMI payments.
Interest Rate
USDA loans have fixed low-interest rates based on current market rates – typically very close to conforming rates.
Repayment Options
You have up to 33 years to repay the loan. Prepayment penalties don’t apply if you pay off your loan early.
Property Requirements
The home must meet HUD minimum property standards and be modest in size and cost relative to area median prices.
The USDA Loan Process
Applying for a USDA home loan involves these primary steps:
1. Check Your Eligibility
Use the USDA Income and Property Eligibility tool to see if you qualify before starting the application process.
2. Find a USDA Lender
Work with a lender approved to issue USDA loans. This includes banks, credit unions, and mortgage companies. Ask potential lenders about their USDA loan experience, availability, and interest rates.
3. Get Pre-Approved
Work with your lender to complete a pre-approval application. They will evaluate your credit, income, debts, and assets and issue a preliminary loan decision.
4. Make an Offer
With your pre-approval letter, you can confidently make an offer on a USDA-eligible property when you find the right home.
5. Complete Full Application
Your lender will guide you through documenting your income, assets, home appraisal, and other details needed to underwrite your final loan.
6. Close on Your Home
Once approved, you’ll review final loan documents, sign paperwork, and get the keys!
Advantages of USDA Home Loans
USDA home loans give lower-income buyers a viable path to homeownership through amazing benefits like no down payment requirement, low rates, and flexible credit guidelines.
More specifically, here are the best perks of USDA loans:
-
Affordable Payments – 100% financing and low rates equal lower monthly mortgage payments.
-
More Purchasing Power – Without a down payment holding you back, you can afford more house for your budget.
-
Low Upfront Costs – No down payment reduces upfront cash needed at closing.
-
Relaxed Guidelines – Flexible credit and debt ratios help more buyers qualify.
-
Low Mortgage Insurance – An upfront 1% fee and annual 0.35% rate keeps mortgage insurance costs affordable.
-
Fixed Rates – Interest rates remain steady throughout the life of the loan.
Disadvantages of USDA Loans
While they offer great perks, USDA loans aren’t perfect for every buyer. Here are potential downsides to consider:
-
Limited Availability – USDA loans are only available in designated rural/suburban areas.
-
Strict Home Requirements – The USDA has limits on home values, size, age etc. This can limit options.
-
Potential Added Fees – You may have to pay an annual fee if your upfront guarantee fee doesn’t equal 1% of the loan amount.
-
Ongoing Mortgage Insurance – You’ll pay an annual 0.35% mortgage insurance fee for the life of the loan.
-
More Oversight – The USDA remains involved in servicing and can even call loans due for violations of program rules.
-
Potential Repayment – Grants used for repairs may have to be repaid if you sell within the first three years.
-
Limit on Repairs – Repair programs have lifetime limits so you may need to finance major renovations separately.
USDA Loan Limits in Indiana
The maximum loan amount you can borrow with a USDA loan depends on the county where the home is located. Here are the 2023 maximum purchase prices for select Indiana counties:
| County | Max Purchase Price |
|---|---|
| Adams | $259,000 |
| Allen | $332,000 |
| Bartholomew | $332,000 |
| Brown | $223,000 |
| Clark | $332,000 |
| Dearborn | $332,000 |
| DeKalb | $299,000 |
| Delaware | $332,000 |
| Elkhart | $332,000 |
| Floyd | $332,000 |
| Grant | $332,000 |
| Hamilton | $332,000 |
| Hancock | $332,000 |
| Harrison | $223,000 |
| Hendricks | $332,000 |
| Henry | $332,000 |
| Howard | $332,000 |
| Huntington | $259,000 |
| Johnson | $332,000 |
| Lake | $411,000 |
| LaPorte | $332,000 |
| Madison | $332,000 |
| Marion | $411,000 |
| Monroe | $332,000 |
| Morgan | $332,000 |
| Porter | $332,000 |
| St. Joseph | $332,000 |
| Tippecanoe | $332,000 |
| Vanderburgh | $223,000 |
| Vigo | $223,000 |
| Wabash | $259,000 |
| Warrick | $223,000 |
| Wayne | $223,000 |
How to Apply for a USDA Home Loan in Indiana
Ready to move forward with a USDA home loan? Here are the steps to take:
-
Check eligibility – Use the USDA site to confirm you meet location, income, and other requirements.
-
Get pre-qualified – Work with a USDA lender to submit financial details and get pre-approved.
-
Compare lenders – Shop around with a few different USDA-approved lenders to find the best rates and closing costs.
-
Find a home – Once pre-qualified, start searching for USDA-eligible homes in your price range.
-
Make an offer – Make an offer
USDA Eligibility Map – Indiana
For starters, a USDA loan is one of the only loan programs offered to the general public that allows you to finance 100% of your home’s value. That means no down payment of any kind!
USDA loans are made even more affordable through very competitive fixed interest rates, ensuring your payments will not increase every month.
Need a 620 credit score
USDA Loans .Net requires a middle credit score of at least 620. If you are close, apply and we can help.
How USDA Home Loans Work | Purchase A Home Using USDA Financing
FAQ
What is the income limit for a USDA loan in Indiana?
Is it easier to get FHA or USDA?
What are the pros and cons of a USDA loan?
|
Pros
|
Cons
|
|
No down payment
|
Income limits
|
|
Competitive interest rates
|
Property restrictions
|
|
Relaxed credit requirements
|
Occupancy requirements
|
|
No PMI requirement
|
USDA program fees
|
What are the DTI limits for USDA loans in 2024?
What is USDA Rural Development?
As a part of USDA Rural Development, our mission is to be a cost-effective service provider that strives to help homeowners and their families remain successful homeowners throughout the term of the loan. Our home loans are serviced by the Customer Service Center (CSC), located in St. Louis, Missouri.
How do I get a USDA home loan?
To apply for a USDA home loan, visit the [Single Family Housing Guaranteed Loan Program](https://www.rd.usda.gov/programs-services/single-family-housing-programs/single-family-housing-guaranteed-loan-program)
How do I get a home loan with rural development?
If you would like information about obtaining a home loan with Rural Development, contact your local service center. If you have an account with us and you would like to view your mortgage account information, you must first obtain a USDA level 1 Customer ID and Password, which you can do by registering below.
How does Rd determine eligibility for a home loan?
Upon receipt of a complete application, RD will determine the applicant’s eligibility using verified information and the applicant’s maximum loan amount based on their repayment ability and the area loan limit for the county in which the property is located. What is the interest rate and payback period?