2017 Guide: Finding the Best USDA Approved Lenders & How to Apply for a USDA Loan


Many potential home buyers looking for a home loan opt for government-sponsored programs. Some of the most popular programs include Department of Veterans Affairs and Federal Housing Authority, but these are not the only options that home buyers look at.

One of the best and most popular government sponsored home loan programs is from the U.S Department of Agriculture (USDA). USDA house loans, or USDA rural loan as they are popularly known, can help home buyers buy the home of their dreams without having to spend a fortune on their down payment.

usda loan map-min

Image Source: USDA

How do you apply for a USDA home loan? Before you apply for a USDA loan, you need to be aware of the different types of loan, eligibility criteria, and eligible locations.



Different Types of USDA House Loans

Wondering how to apply for a USDA loan and what the house loans available are? There are three basic types of home financing options that USDA offers to home buyers. The type of loan that a buyer takes on depends a lot on their eligibility, what their specific needs are, and whether they qualify for it.

1. Direct Loans

Direct loans come straight from the USDA, and to qualify for this home mortgage program the borrower must have very low income. These loans are typically guaranteed only for smaller homes that are below the market value of an area.

2. Home Improvement Grants and Loans

A USDA loan application can be made to make improvements to the home. This grant or loan allows you to repair and update the house even when you do not have adequate cash.

3. Loan Guarantees

Loan guarantees are available through various USDA-approved lenders. The USDA does not loan money directly to the buyer in this program. This reduces the risk lenders would take on in extending 100% home loans to buyers. Low-income home buyers may be able to get good interest rates even when they do not have the requisite money to make the down payment.

See Also: Best Banks for Mortgages – A Complete Guide (Best Mortgage Rates & Reviews)



Eligibility Criteria for USDA Home Financing

Do you want to know how to apply for a USDA home loan? One important thing to remember is that USDA house loans are not available for all. In order to qualify for these home financing programs, home buyers need to meet certain eligibility criteria. Most borrowers are not aware of this when they apply for a USDA loan.

As these home mortgage loans are designed to help low-income families buy a home, there are income limits for borrowers. If you want to apply for a USDA loan, you need to learn about the income limits. The income limits are divided into:

  • Very low income
  • Low income
  • Moderate income

Home buyers falling in the very low income and low income categories can qualify for direct loans from the USDA or home improvement grants and loans. Buyers with moderate income may qualify for the loan through approved USDA mortgage lenders. Additional requirements may need to be met by home buyers.

The USDA loan map is to provide assistance to individuals and families with the greatest need for such loans. The home financing is actually intended for those who may not be able to get a mortgage through traditional methods.



Eligible Locations

Even if you or your family fulfills all the eligibility requirements to get a USDA loan, you need to purchase the house in a location that has been classified as eligible. The home financing is part of the Rural Development Program, with the goal to boost the economies of rural communities and encourage buyers to purchase homes in rural areas.

If you want to get a USDA housing loan, you need to purchase a home in a rural area. Less populated suburban areas may also qualify for the home financing program, but urban homes do not qualify.

How to apply for a USDA loan and ensure your eligibility? Make use of the USDA property eligibility map to check whether the home you plan to buy qualifies for USDA housing loans. Search for USDA-approved homes that are classified as rural.



100% USDA Financing

One of the main reasons that many families opt for USDA housing loans is the availability of 100% financing. The USDA loan map is designed to help families and individuals with limited means, which is why 100% financing is provided. This means that the home buyer does not have to make a down payment to get the USDA rural loan through a USDA lender.

The 100% financing allows families and individuals who may otherwise not be able to buy a home to do so. This means that the USDA is taking a bigger risk by agreeing to provide 100% financing to borrowers. In order to recover the costs associated with these loans, buyers receiving the loans need to pay for mortgage insurance.

As the USDA housing loans are much cheaper than the typical down payments, the home buyers may have to pay a 2.75% upfront fee at closing. In addition, buyers may also have to pay an annual fee of 0.5% on the remaining principal balance.

When compared to other mortgage options, a USDA rural loan is extremely affordable, even when you add the mortgage insurance payments. One of the amazing aspects of 100% financing loans is that they have lower mortgage insurance premiums than the other government-sponsored loans that are available. If you take a loan through FHA, you may be required to pay 0.85% in annual mortgage insurance premiums.

Low mortgage rates are another reason that most home buyers choose to opt for the USDA rural loan. Borrowers who are not able to afford a down payment and want 100% financing for their loans usually expect a higher mortgage rate. If you get a mortgage from USDA mortgage lenders, the rates are much lower than the other government sponsored loans like the VA and FHA.

Popular Article: How to Get a Home Equity Loan with Bad Credit (What You Need to Know)



USDA Loan Application

How to apply for a USDA home loan? In order to get USDA housing loans, you need to fill out the USDA loan application. This needs to be done with approved USDA mortgage lenders. The USDA loan application is similar to other home loan applications.

All you need to do is to prove that you have had a steady source of income for the past 24 months. As with any mortgage application, the home buyer may have to undergo a credit check.

The only thing that makes the USDA rural loan different is that you need to prove that you meet the specific requirements that are needed to get loans for USDA-approved homes. When you apply for a USDA loan, your income has to fall within the specified limit, and you need to purchase the home in the specified location.

If you want to purchase a home in an urban area or if your income is higher than the eligibility criteria, you may not be able to apply for a USDA loan. If you are still not sure about how to apply for a USDA loan, you can seek the help of USDA mortgage lenders to fill out the USDA loan application and complete the process in an efficient manner.

Related: Getting an Interest Only Mortgage this year? What You Need to Know



Finding the Best USDA Approved Lender

Finding a USDA-approved lender that you are comfortable working with is not as easy as simply finding a USDA lender. Most lenders that offer home loans are not familiar with the USDA rural loan program or they may be unfamiliar with the recent changes in the USDA loan application process.

Hundreds of USDA lenders are available all over the country. Lenders do not usually advertise the USDA rural loan programs but there are many USDA-approved lenders in every state. When applying, remember that the loans are not directly funded by USDA; the mortgage loan is provided by the approved lender.

Here are a few things to look for when seeking a USDA-approved lender.

  • Look for Experience

There may be some lenders who, although they are approved by the USDA, do not have the requisite experience and expertise in dealing with USDA rural loans. As only a small percentage of people apply for USDA-approved homes, the lenders rarely have to deal with the USDA loan map process.

It is much easier to find a lender with experience in rural areas as they regularly handle the process of USDA rural loan program. Although some suburban neighborhoods are also eligible for this home financing, the USDA-approved homes program is more focused on rural areas.

In rural areas, all homes qualify for these loans. Check out the local institutions with USDA-approved lenders. When you meet a lender, it is advisable to ask them questions pertaining to how to apply for a USDA home loan and the eligibility requirements. If the lender is knowledgeable about the program, they may be able to answer all your questions.

  • Do Not Trust Endorsements

When you do a quick online search for USDA mortgage lenders, you may come across many lenders that claim to be endorsed by USDA. They may use the USDA logo or any other means to gain legitimacy. You need to avoid such companies as the USDA does not endorse any particular lender.



  • Compare

When you are looking for a home loan or mortgage, it is always advisable to compare the many options available. Avoid going to just one mortgage lender. Talk to several lenders so that you can ascertain their knowledge and level of expertise in USDA rural loans. Be aware that, although all rural development home loans are backed by the USDA, they are not created equal. You may be able to get a better deal from one lender compared to the other.

In addition, your USDA loan application may be rejected by one lender and get approved by another lender. This is because each lender has a separate criteria and just because you meet all the specified requirements of a USDA home loan, you may not get automatic approval from the lender. If a particular lender rejects you, it is best to look around for a lender that may approve your loan application.

usda approved homes-min

Image Source: USDA

When comparing lenders, it is best to get quotes from several lenders. This can enable you to find the best mortgage rate for the loan. Ask for a written quote so that you may compare it with other quotes that you get. You may be able to save a substantial amount of money when you look for a lender with the best rates, provided that they are also skilled at what they do.



  • Ask Your Bank

There are several big banks that are approved USDA lenders. You can choose a bank that you know and trust. Ensure that the bank can provide the USDA home loan service you require. The bank may be good at providing other services, but if they do not have experience in USDA home loans, it is best to look at a different bank that has the necessary experience in processing such loans.

  • Choose Top Lenders

Top lenders in each state are recognized by the USDA. These are lenders that have provided the maximum USDA home loans in their state or their allotted geographical area. The top lenders are not necessarily the best, but it is a good indicator that they may have adequate experience in the USDA loan map process.

As many lenders are unfamiliar with the many USDA rural loan regulations, it is advisable to work with a top lender, as they may be aware of the latest requirements that need to be fulfilled by borrowers to get the loan. Lenders with proven experience may also enable you to get the best deal on USDA-approved homes.

  • Research

Do not trust anything that the lender tells you, and do your own research to ascertain the facts. This can enable you to find out the mortgage rates that other lenders are providing on home loans. When you learn more about home financing and other aspects of USDA home loans, you may be able to get the best deal. Although you do not have to be an expert, it is advisable to gain some sort of knowledge.

When you do your research, you may be able to know what rates to expect, whether you are eligible for a particular type of home, and most importantly, whether you qualify for a USDA home loan. The USDA website can provide a lot of information about the many regulations and requirements.


Free Wealth & Finance Software - Get Yours Now ►


Is a USDA Home Loan Right for You?

If you are keen to purchase a home in the rural or suburban area, the USDA loan is a good option. If you have a moderate income and good credit history and you are a U.S citizen or permanent resident, you can purchase your dream home through this option. The USDA home loan program is not only affordable; it is also simple, making it a great option for those who qualify.

Read More: Redfin Reviews | What You Should Know about Redfin (Real Estate)



AdvisoryHQ (AHQ) Disclaimer:

Reasonable efforts have been made by AdvisoryHQ to present accurate information, however all info is presented without warranty. Review AdvisoryHQ’s Terms for details. Also review each firm’s site for the most updated data, rates and info.

Note: Firms and products, including the one(s) reviewed above, may be AdvisoryHQ's affiliates. Click to view AdvisoryHQ's advertiser disclosures.