The United States Department of Agriculture helps those who otherwise wouldn’t qualify for home financing to become homeowners. The USDA’s single-family housing guaranteed loan program benefits low- or moderate-income homebuyers in rural areas. The USDA backs these loans to promote economic development in places with smaller populations.
Homeownership helps stabilize the local economy and community because homeowners are more likely to purchase or use home-related goods and services. Additionally, it’s much more probable homeowners will stay within a neighborhood or local community longer, contributing to the continued growth of the local economy and businesses. While traditional home loans require a minimum down payment, a USDA loan does not. If you are not eligible for an FHA loan or a conventional mortgage, you may want to consider a USDA home loan.
Buying a home is an exciting milestone in life. But for many navigating the mortgage process can feel daunting especially when it comes to more complex loan programs like USDA loans. If you’re considering a USDA loan, this step-by-step guide will walk you through what to expect so you can feel informed and empowered.
What Are USDA Loans?
USDA loans are government-backed mortgages aimed at promoting homeownership in rural areas. They offer incredibly lenient terms, including:
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Zero down payment – No need to pony up 3-20% like you would with conventional loans.
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Low interest rates – Often lower than rates for conventional or FHA loans.
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Flexible credit requirements – Minimum credit scores around 640
USDA doesn’t directly finance these loans. Instead, they guarantee qualified mortgages made by approved lenders. This gives lenders confidence to provide affordable financing.
To qualify, homes must be located in eligible rural areas, defined as open country or rural towns with populations under 20,000. Surprisingly, this encompasses a lot of America – about 97% of the country’s land mass.
Step 1: Prequalify with a USDA Lender
The first step is connecting with a lender that offers USDA loans. Not all lenders participate, so finding one experienced with this program is key.
When prequalifying, the lender will assess:
- Your desired loan amount
- Income
- Debts
- Credit score
This helps determine if you meet the basic criteria. Prequalification is quick and doesn’t obligate you to that lender. Use it to get your ducks in a row before formally applying.
Step 2: Get Preapproved
After prequalifying, you’ll want to get a preapproval letter from your lender. This verifies:
- Your income using pay stubs, tax returns, etc.
- Debts
- Creditworthiness
- Maximum loan amount you can borrow
Having a preapproval in hand shows sellers you’re a serious buyer. It also gives you a price ceiling when house hunting.
Step 3: Find an Eligible Home
Now the fun part – go find your dream rural home! Use the USDA’s Property Eligibility tool to check if a home qualifies.
Two main criteria must be met:
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Location – The home must be in an eligible rural area. The USDA map can verify this.
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Income Limits – Your income must be below limits for the area, adjusted by household size. The USDA income eligibility tool can check.
Working with a real estate agent familiar with USDA loans will help navigate this.
Step 4: Sign a Purchase Agreement
Found your perfect home? Make an offer and sign a purchase agreement when it’s accepted. This outlines the home’s price and terms.
Your lender will then order an appraisal to ensure the home meets program guidelines and is worth the purchase price.
Step 5: Get Underwriting Approval
Next, your lender will underwrite your mortgage application. This comprehensive review verifies all your financial information.
The lender will also submit your appraisal, credit report, and other documents to the USDA for approval. This extra USDA sign-off is unique to this loan program.
Providing requested paperwork promptly will help streamline underwriting. Clear communication with your loan officer is key.
Step 6: Get Final Approval
It’s almost go-time! After underwriting, the lender will issue a “clear to close” letting you know your USDA loan is fully approved.
But first, the USDA must sign off. This generally takes 1-2 days but could take weeks depending on their volume. Discuss timing with your lender.
Once the green light from USDA comes, clear sailing ahead. Now you can…
Step 7: Close and Move In!
During closing, you’ll sign final loan documents and paperwork. Hand over your down payment (none!) and closing costs.
After the keys are yours, you’ll have to move in within 60 days as USDA loans require owner-occupancy.
Then relax and celebrate as you settle into your beautiful new home! Enjoy your warm, welcoming rural community.
Key Takeaways
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Prequalify and get preapproved with a USDA lender
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Ensure the home meets location and income limit guidelines
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Sign a purchase agreement once your offer is accepted
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Get underwriting from lender and final USDA approval
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Close on your 0% down mortgage and move into your new home!
Following this step-by-step process will help your USDA loan journey feel clear and manageable. You’ll be that much more equipped to navigate the road to an affordable rural home.
USDA Loan Processing, Underwriting and Closing
After you and the seller have reached an agreement and the appraisal has finished, you will be under contract. During this time, your lender and an underwriter will work together to look over your file and ensure you meet all qualification standards. Additionally, your lender and the underwriter will ensure all aspects of your application are in order before finalizing the sale.
How long does it take to process a USDA loan? While the length of time varies from person to person, the USDA underwriting process and underwriting timeframe take approximately 30 to 60 days. What happens after USDA approval? You will receive notice you are clear to close on a house. This notice means you can schedule the official closing and take ownership of your new home.
Can You Build a House With a USDA Loan?
The USDA construction loan process is very similar! By design, USDA construction loans help potential homeowners build homes in rural areas. A USDA construction loan can help finance a plot of land, cover construction costs and serve as a long-term mortgage. These loans may be less common, but are available for eligible borrowers looking to build a home in a suitable rural area.
USDA 0% Down Loan Requirements and Process Explained Step by Step 2023 | Morgan Mayfield
FAQ
How long does it take the USDA to approve a loan?
What is the USDA underwriting process?
Why is USDA taking so long?
Do USDA loans get denied in underwriting?
What is the USDA home loan process?
Generally speaking, the USDA home loan process follows the same basic procedure as other types of home loans. (You can find a general overview of the mortgage process here, for reference.) Here’s what to expect from a USDA-specific mortgage process: 1. Achieve prequalification and preapproval for a USDA loan with a lender or mortgage broker
How do I apply for a USDA loan?
The first step of the USDA loan process is to ensure you meet the requirements. Before you complete the USDA loan application process, you will want to consider several things, including location, income, credit score and residency. To be eligible for a USDA construction loan or home loan, you must fulfill specific criteria.
How long does it take to get a USDA loan?
Make sure your lender is using an appraiser familiar with the USDA guidelines, and expect this step to take at least a week to complete. This step might take a little longer than a conventional mortgage because there are two levels of approval for USDA loans.
How does getting a USDA loan feel?
To the applicant, getting a USDA loan will “feel” just like getting any other mortgage. Qualifying for a USDA home loan is a lot like any other type of loan, except with an extra step: Your loan application must be approved by the USDA. Here’s an overview of the USDA loan approval process: 1. USDA mortgage lender prequalification