Learn How to Qualify for 0% USDA Down Payment Loan

Guidelines for USDA Loans
Guidelines for USDA Loans. Getty Images

USDA loans offer 0% down payment mortgage for qualifying borrowers. USDA rural mortgage financing has four major caveats to qualification - Geography, Credit, Employment, and Income. The guidelines for a USDA Rural Mortgage Loans include:

Credit History

Credit history must indicate a reasonable ability and willingness to meet obligations as they become due. A major influence is paying bills before they become turned over to collections.

However, if you have had blemishes in the past, these may be overlooked if you have re-established your credit over the past 12 months. These blemishes could include Judgments and Collections.

Property Restrictions

When an individual or family is seeking a USDA mortgage, the property must be used as the primary residence. However, keep in mind that both new and existing homes are eligible. In addition, there is no restriction placed on the design, size or layout of the home. The prospective property, however, must be declared as safe, sound and sanitary, meeting all the necessary building requirements in the area.

Used mobile homes are NOT permitted. The home must be a primary residence, no investment or rental purchases. You do not have to be a first time home buyer to use the USDA loan. So as long as you meet the requirements this could be your 2nd or 3rd home.

Income Requirements

Each county has specific income limits that determine USDA mortgage eligibility, and your current income must not exceed the limit set for that county.

While the income limits are based on family size, they are not intended solely for low-income families. Instead many low to moderate families can qualify.

Job History

Pretty much the same as other home loans, stable 2-year history of documentable income. The exception to this is college grads that have just started working.

Applicants are ok if they have to switch around jobs, as long as they have no unexplainable extended gaps of employment.

Maximum USDA Loan Amount

USDA does not have maximum loan amount. Borrowers qualify based on their debt to income ratios. The limit for this is generally 42%.

USDA Rural Credit Score

640 min credit score is required. Clean payments history on all credit trade lines in the last year. No short sales, foreclosures or bankruptcies within the last 3 years.

USDA Closing Time

The USDA application process generally takes 15 min to complete. Once complete, the USDA loan pre-approval process is generally complete the next day.

The closing process is generally 45-55 days once the home buyer has a fully executed and approved contract on a home. This is subject to change based on Rural Housing processing times, which do change.

Property Locations

USDA rural mortgage loans have nothing directly to do with farmland or farmers. Instead, most rural areas qualify for USDA mortgages. This is generally defined as being located outside of the city limits and within an area with a population of less than 20,000.

Any single family residence located in a USDA eligible area regardless of the seller.

Let’s break this down further and start with geography first. What guidelines does USDA require in regards to geography? Well, you have to be in a so-called rural area. How does USDA classify what is - or is not - a rural area?

Rural Areas

The term "rural area" means any area, as confirmed by the latest decennial census of the Bureau of Census, which is not located within a city, town, or incorporated area that has a population of greater than 20,000 inhabitants, or an urbanized area contiguous and adjacent to a city or town that has a population of greater than 50,000 inhabitants.