USDA Loan Eligibility Requirements

USDA home loans have some pretty big advantages, including low rates, reduced mortgage insurance, and no downpayment requirement.

However, unlike conventional loans, USDA loans come with additional eligibility criteria beyond just being a qualified borrower. If you're considering a USDA loan for your home purchase, this guide can help you determine if you're eligible.

USDA Loan Requirements

To qualify for a USDA loan, you have to meet certain income and credit requirements. Additionally, the home you buy has to be located within a USDA-designated "rural" area.

Let's dive deeper into the requirements that qualify you for a USDA home loan.

How to Qualify for a USDA Loan

To qualify for a USDA loan, you have to meet certain income and credit requirements. Additionally, the home you buy has to be located within a USDA-designated "rural" area.

You may be eligible to use a USDA home loan if:

• The property stands within a USDA-designated area
• You meet minimum lender credit requirements (620 is the typical cutoff, but it varies by lender)
• Your household's total income falls within 115% of the median income in your area
• Your income is stable and consistent
• The property will serve as your primary residence
• You're a U.S. citizen, non-citizen national, or qualified alien

1. Meet USDA Income Requirements

   To be eligible for a USDA loan, you'll need a stable source of income. Your lender will verify this income using your income documents (paystubs, W-2s, bank statements) along with verification from your employer.

   Your income will also need to fall within the below guidelines.

   USDA loans provide an affordable financing option for low-to-moderate-income homebuyers. Because of this, your household's total income can't exceed local USDA income limits. Income limits are calculated using 115% of the area's median household income — so your income can't be any more than 15% higher than the surrounding area's median income.

   The current average USDA income limit for 1-4 member households is $110,650. For 5-8 member households, the average limit is $146,050. USDA loan limits may be higher to account for areas where housing and earnings are a bit pricier.

   Lookup your city's USDA income limit!

2. Meet USDA Lender Credit Requirements

   The USDA does not have an established benchmark on minimum credit scores for borrower eligibility. Minimum credit requirements are set by the lender and can vary. The typical cutoff for most USDA lenders is 620. However, many lenders can and will work with you to establish your creditworthiness differently using compensating factors.

   If your credit falls below 620 or you've not established a credit history, you may still be able to get a USDA home loan by talking with a knowledgeable USDA lender.

   Some lenders will instead use compensating factors to show your creditworthiness in underwriting. Documenting a healthy savings account and carrying very little debt can go a long way. If your current monthly housing expense will be lower than your new house payment, that works, too.

   Additionally, your lender may ask you to establish what's called a non-traditional tradeline. This is done by showing 12 months of on-time payments on utility bills, rent, health insurance premiums, or other regular expenses. Showing your willingness and ability to maintain these monthly obligations strengthens your loan application for underwriting.

3. Find an Eligible Property

   Only properties within USDA-designated rural areas can be purchased with a USDA home loan.

   The definition of "rural" doesn't just mean farmland and homes in very remote areas. There are actually many suburban properties that are eligible for USDA loans as well.

   The condition of the home you're buying matters, too. The USDA outlines specific minimum property requirements (MPRs) to ensure the house you buy is a safe and sound investment.

   The home must have:

   • Direct access to a road, street, or driveway
   • Proper utilities, water, and sewage disposal
   • A structurally sound foundation
   • Adequate roofing
   • Functional heating, cooling, and electrical systems

   Only single-family homes can be purchased with USDA financing. Additionally, the property must serve as your primary residence. Investment properties and second homes are ineligible.

4. Apply With a USDA Approved Lender

   To apply for a USDA home loan, you'll need to work with a lender approved by the U.S. Department of Agriculture. Not all lenders offer USDA loans, so it's important to find one with experience with the program.

   Neighbors Bank is the Top 5 USDA Lender in the United States. We can help you determine if you meet the qualifications and ensure that all necessary paperwork is completed correctly.

Have more questions about USDA loans or eligibility? Get in touch today.