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As of June 25, 2018, we’ve made some changes to the way our mortgage approvals work. You can read more about our Power Buyer ProcessTM.

Are you looking to buy a home but don’t have the money saved for a down payment? If you live in a qualifying rural area, you may be able to take advantage of a USDA loan, now offered by Quicken Loans.

We’re very excited to be able to offer this option to our clients. Along with the VA loan, the USDA loan is one of the few loans available allowing home buyers to purchase without the need for a down payment.

The USDA loan program has some other desirable features we can’t wait to tell you about. As with any loan program, there are also some requirements to qualify. Before we get there, let’s start with the basics.

What Is a USDA Loan?

A USDA loan (also known as a Rural Development loan) is a loan that’s backed or directly guaranteed by the U.S. Department of Agriculture (USDA) for people in rural areas with the goal of providing an affordable option for housing in these communities.

The USDA loans offered by Quicken Loans are made available through the Guaranteed Rural Housing Program (section 502). That means that eligible loans are made by Quicken Loans and backed or guaranteed by the U.S. Department of Agriculture.

What Are the Features of a USDA Loan?

The USDA loan program has a couple of unique features that make it one of the most competitive loan options available on the market for those looking to get a house. Here are a couple of the big ones.

0% Down

The biggest feature of this program may well be the fact that it doesn’t require a down payment. This could make the program particularly attractive for those looking to get into their first home with little to no funding for a down payment, although there’s no requirement that you be a first-time home buyer.

It’s available as a purchase loan for primary properties. In addition, you can do a rate/term refinance from another USDA loan on up to 100% of your existing loan balance. Cash-out transactions aren’t available on USDA loans.

Low Guarantee Fees

Loans that don’t require high down payments all have some sort of insurance tied to them in order to give mortgage investors a little bit of extra protection in exchange for a low or no down payment.

The USDA version of this is called a guarantee fee. It functions similarly to FHA mortgage insurance, but the key difference is that the fees are a lot lower. How much lower? Let’s do a quick comparison.

The following example assumes that you’ve made no down payment on a USDA loan and the minimum 3.5% down payment on an FHA loan for a $200,000 loan amount.

On an FHA loan, you would pay 1.75% of your loan amount in upfront mortgage insurance premiums. That’s $3,500, either paid at the closing table or financed into the loan. The annual premiums come out to 0.85% per year, which breaks down to $141.67 per month.

Let’s compare that to the USDA loan option. The upfront guarantee fee for USDA is 1%. If we apply that to our $200,000 loan amount, it’s $2,000 in upfront fees, or it can be financed into the loan amount just like with the FHA option. The annual guarantee fee is only 0.35%, which is $58.33 on a monthly basis.

Requirements for a USDA Mortgage

These benefits make the USDA mortgage a great option for qualified clients. Now that we’ve talked up the benefits, what do you actually need to know to qualify? Qualification for this program is based both on the area in which you’re looking to buy and your financial profile.

Eligible Properties

In order to qualify for this program, your property has to be inside one of the designated areas. If you’ll be living in a metropolitan area, this loan program isn’t for you. However, if you live in a rural area or even on the outskirts of suburbia, you may find that this is an option worth looking into.

The USDA does have a map you can use to check eligibility in your area. When you look at the map, any address outside of an orange area is eligible for the program. I’ve included a sample screenshot below.

Property eligibility map screenshot

Image: Property Eligibility Map

There can’t be a working farm on the property, and you can only purchase a single-unit primary residence.

Income Eligibility

In order to qualify for a loan under the USDA, the total income of all the adults in your household can’t exceed 115% of the area median income. It’s important to emphasize that this includes all the adult members of your household, not just mortgage applicants themselves. Let’s go through an example so you know what to expect.

Let’s say I made $40,000 per year and my wife made $30,000. If our son earned $10,000 per year as a waiter while working his way through college, our total qualifying income would be $80,000.

If your household has more than four members (adults plus minors), you may be able to qualify for this program with slightly higher income. In addition, if anyone is a full-time student in your household, there’s a limit to how much of their income is counted for qualification purposes.

In order to see if you’re eligible, you can run your numbers through the USDA’s income eligibility page. When you check your eligibility, certain expenses like child care can be deducted as well.

Credit Requirements

There are a couple of requirements that need to be called out in terms of your credit history in order to qualify for a USDA loan. The following are the guidelines for getting a USDA loan through Quicken Loans. Other lenders may have different requirements.

  • You need a minimum FICO Score of 620 in order to qualify.
  • For the best chance of qualifying, your debt-to-income ratio (DTI) – a comparison of your monthly debt payments against your overall monthly income – can’t exceed 50%. For the best chance of approval, keep your DTI at 45% or less.

Let’s do a quick sample DTI calculation so you know where you stand.

Let’s say you make $48,000 per year. That gives you a monthly income of $4,000. Let’s say you spend $1,000 per month on rent. You have a $400 student loan payment and a $250 monthly car payment. Your minimum credit card payment is around $50 per month. Your total DTI is 42.5% ($1,700/$4,000).

If the USDA loan option sounds right for you, you can get started online. If you’re more comfortable speaking with one of our Home Loan Experts, they’d be happy to take your call at (800) 785-4788. If you still have questions, leave them for us in the comments below.

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This Post Has 10 Comments

  1. When they add everyone income like in the article do they credit score have to be at 620 too? Or can just one person do the loan and add the husband income if they score is not there.

    1. Hi Nita:

      Only one person has to be on the loan for credit purposes. Your husband’s income would be added, but his score wouldn’t need to be looked at. If you’d like to get started, one of our Home Loan Experts can be reached at (888) 980-6716. Hope this helps! Have a great day!

  2. I have been approve since May 2018. Been in contract since May 28,2018. But haven’t closed on my home. Does it really takes this long to close all a home.

    1. Hi Kimberly:

      We have a lead for you in our system, but it looks like it’s from well before the timeline you provided here. I can’t comment on your process with another lender, but I can tell you that every situation is different and occasionally hiccups do come up in the lending process. However, I would say that you have waited a long time. I’m going to send this to our client relations team just in case you do happen to be working with us under a different email address. If you are, we would be happy to look into your situation. Thanks for reaching out!

    1. Hi Katrina:

      in addition to the actual requirements of the loan program, you would get an approval by submitting documents like W-2s, pay stubs, bank statements and tax returns. We would also pull your credit. Those are the basic things you need to know going in. If you would like to get started online, you can. One of our Home Loan Experts would also be happy to help you at (888) 980-6716.

  3. What bills are counted when doing a debt to income ratio ? Is it just credit cards and loans or are things like phone bills and utily bills also counted ?

    1. Hi Barbara:

      When lenders look at debt-to-income (DTI) ratio, they’re looking at your credit and loans you’re paying on because that’s what shows up on your credit report. So that’s things like your credit card bills, car loans, student loans, personal loans and mortgage. Your utility and cable bills typically don’t show up on your credit report and wouldn’t be counted. However, you don’t want to fall behind on those bills because if you become delinquent, then the utility company will report it to the credit bureau as a late payment. If you want to get a peek at some of this, our friends over at QLCredit can calculate your DTI from your TransUnion VantageScore report.

      If you feel you’re ready, go ahead and apply for a mortgage approval through Rocket Mortgage or by giving us a call at (888) 980-6716. Have a great day!

  4. I was looking into a USDA loan for a property in NJ that is in the qualified area for this type of loan, On a 125,000 home sale price what would be the interest rate and closing costs for a loan of this amount

    1. Hi Stephen:

      I can’t give you an interest rate and closing costs quote on the blog because it very much depends on your personal situation. We factor in everything from your debt-to-income ratio to your credit score and the size of your down payment. Here’s an article on what goes into your interest rate. You would need to speak with one of our Home Loan Experts to go over your situation. You can get in touch with them by filling out this form or giving us a call at (888) 980-6716. Hope this helps!

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