USDA loans are part of a nation-wide program created by the U.S. Department of Agriculture aimed at helping first-time homebuyers or those who don’t meet conventional mortgage requirements get loans. It’s a home loan that requires no down payment for low- and moderately-income buyers, mostly in rural areas.
Looser credit score requirements along with no down payments are some of the benefits of a USDA mortgage however there are some downsides. The property must be located in a USDA-approved location, typically in rural areas rather than urban and there are income limits for borrowers.
There are three types of USDA loan programs. The USDA guaranteed program allows borrowers within certain income thresholds in specific eligible locations be provided a 30-year fixed rate loan. The USDA direct program offers low-rate loans to people in need of adequate housing and the USDA repair program offers loans up to $20,000 to improve or repair a home.
There are property requirements for USDA home loans. The home must be located in an eligible rural area. The USDA defines a rural area as “open country or any town, village, city, or place, including the immediate adjacent densely settled area, which is not part of or associated with an urban area.” There are also population requirements for the loan—35,000 and cannot be within a metropolitan statistical area.
While downtown Charlotte areas wouldn’t satisfy the requirements for a USDA loan, many neighborhoods in Charlotte would such as Berewick, Creekshire Estates, Graystone, Riverwood and Sherwood Forest. Areas in surrounding counties meet the rural component of the loan as well like Gaston county, Lincoln county and Cabarrus county.
There are two fees that come with the program in 2022: an upfront guarantee fee and an annual fee. Both of these fees are charged to the lender who then generally passes the costs on to the buyer. Depending on the needs of the program, the fees can change annually. The upfront guarantee fee this year is 1% of the loan amount and can be rolled into the mortgage rather than paying out of pocket while the annual fee is .35% of the loan amount. If for example a $100,000 mortgage has a $1,000 on-time payment while also having a $350 per year payment for the life of the loan. Other fees could include loan applications, underwriting fees, credit report fees and appraisal fees.
Along with location requirements, there are also income limits. The limits vary by area and family size. The USDA sets limits at 115% or below of the median household income for each region and those limits are updated annually.
Why USDA over other government-insured options like an FHA will depend on the home’s location, your income credit score and debt-to-income ratio.
You can find USDA-eligible homes in your area here.
And you can the income limits for your household size in your area here.