Am I Eligible for a USDA Loan?

by Wendy Wiegand 11/16/2020

Image by Free-Photos from Pixabay

If you're looking for loans with excellent interest rates, you may have heard the term USDA bandied about. This special type of loan is attractive on paper, but the reality is a little more complicated than what meets the eye. Learn more about what a USDA loan is meant to do, how to get one, and why the terms are so buyer-friendly. 

The Goal of the USDA 

The primary goal of a USDA loan is to infuse new life into rural communities. When people flock to cities, it causes rents to rise and small towns to crumble. A USDA loan is a way to entice Americans to renovate old homes and keep abandoned neighborhoods alive. These loans are backed by the government and issued by the lender. Because of the purpose behind the USDA, the applicant is judged more so on their general merits rather than their financial status. As long as the buyer is willing to commit to the property and the surrounding community, they're likely to be approved. 

Requirements of the USDA Loan 

Here are the key eligibility requirements for a USDA loan: 

  • Location: The majority of USDA properties will be in rural areas. You'll need to research the homes available under the USDA umbrella before applying for a loan. 
  • Credit score: The credit score minimum is ambiguous since the USDA loan is based on more than just straight financials. However, those with a credit score of at least 640 typically receive a fast-tracked application. This means fewer questions and underwriting from the lender and a nearly guaranteed approval. 
  • Down payment: USDA loans don't require a traditional down payment. However, you will need to pay 1% of the loan to the lender if putting down less than 20% of the total loan. 
  • Fees: There's a .35% fee every year for the entire course of the loan. The .35% is applied to the mortgage balance, meaning it decreases every year. 
  • Interest rates: The lender sets the interest rates for USDA loans, but they can go as low as 1% in some cases. 
  • Closing costs: Closing costs are typically between 1 and 3% of the total price of the home. 

It's worth noting that some USDA homes are in more populated areas, so you shouldn't assume a property is ineligible until you confirm. If you're unable to secure a USDA loan, you may want to consider an FHA loan. While the terms are not quite as attractive, FHA loans are also backed by the government. This gives people with lower credit scores a way to secure a property at a reasonable interest rate. 

About the Author
Author

Wendy Wiegand

As a premier real estate agent in Carlsbad, I’m here to provide you with all the resources and information you need to buy or sell real estate. I work with buyers and sellers in Carlsbad, Encinitas, Oceanside, San Marcos, Vista and the surrounding areas and I’ve had extensive training in the latest real estate marketing strategies.  I’m confident that I can offer you knowledge and tools most other agents can’t.

I believe in service, both to my clients and our community. When working with clients, you can be assured I am focused on providing the most comprehensive and dedicated effort so that you can achieve the best results possible when buying or selling real estate. I am also deeply involved in serving our community, as you and I all call it home. I have been a member of Rotary since 2003, have been an active member of the Carlsbad Chamber of Commerce since 2006, and serve on the board of the Agua Hedionda Lagoon Foundation. Perhaps my even deeper service to my clients and our community is Wiegand Realty’s participation in Business for a Cause.

Contact me so I can keep you updated on the latest real estate activities in our community and answer any questions you may have.

Thanks and I look forward to assisting in all of your real estate needs! 

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