NEW YORK, NY — Buying a home has become more difficult for many Americans as prices remain near record highs and mortgage rates have recently moved above 6.70 percent. For households already carrying debt, the challenge can feel even sharper. CNBC said 22 percent of Americans have put off buying a home because of debt, based on its Quarterly Money Survey with SurveyMonkey released in July.
One option for some buyers is a USDA loan, a mortgage backed by the U.S. Department of Agriculture and aimed at certain properties in eligible rural and suburban areas. The loan is designed to reduce one of the biggest hurdles to homeownership: the down payment. Qualified borrowers can buy with no money down, though the home must meet USDA rules and the buyer must use it as a primary residence.
What USDA Loans Require
CNBC Select laid out several basic requirements for USDA financing. In many cases, lenders look for a credit score of at least 620, though that number can vary by lender. The household income generally cannot exceed 115 percent of the area median income, and the debt-to-income ratio is typically 41 percent or lower. The property must be a single-family home in an eligible rural area and in livable condition.
Borrowers also have to get a USDA appraisal and move in within 60 days after closing. The home must be the buyer’s full-time residence. After closing, borrowers pay an upfront guarantee fee of 1 percent of the loan amount. CNBC Select noted that applicants can apply either through the USDA or through a private lender, depending on the type of USDA loan they choose.
Two Loan Paths
The USDA offers two main loan types. Guaranteed Loans are the most common and are funded by private lenders but backed by the USDA. They are aimed at low- and moderate-income households earning 115 percent or less of area median income. The second option, the USDA Single Family Housing Direct Loan, comes directly from the agency and is designed for very-low- and low-income borrowers who do not have decent, safe or sanitary housing.
According to USDA information cited by CNBC Select, Direct Loans can carry interest rates as low as 1.0 percent for qualified borrowers. They also come with longer terms, typically 33 to 38 years, which can reduce monthly payments. That structure makes the program different from a standard 30-year mortgage, but it also narrows who can qualify and what kind of home can be purchased.
How Buyers Can Check
CNBC Select pointed to several lenders that work with USDA borrowers, including Guild Mortgage, PNC Bank and PrimeLending. Guild Mortgage says it can accept credit scores as low as 540 for USDA loans. PNC has more than 2,000 branches and offers USDA loans with no down payment, while PrimeLending advertises a 21-day closing guarantee and approval within 24 hours for some borrowers.
For buyers, the next step is to confirm whether a home is in an eligible area and whether household income fits USDA limits. The agency’s website and participating lenders can verify property eligibility, income rules and loan type. Because rates, fees and lender requirements differ, borrowers need to compare the official USDA terms with each lender’s own standards before applying.
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