4 Basic Requirements That Determine USDA Loan Eligibility

May 7th 2016

Urban areas do not qualify for USDA loans, but there are areas in some suburbs that are part of the plan; the exact locations can be found on the USDA website. If you have a regular income below the cutoff for your chosen eligible area and have no other way of getting home finance, it's worth applying to this often under-acknowledged and extremely useful program.

U.S. Citizenship

USDA loans are only for citizens and permanent residents. This is a basic requirement that cannot be waived.

Monthly Limits

The monthly payment for your loan must be 29 percent or less of your monthly income. Any other monthly debt payments you make must not take your payments above 41 percent of your income, generally speaking. However, the agency will consider higher debt ratios if your credit score is higher than 660.

Income Security

Proof of regular income, usually for at least two years, is required at the time of application. However, though this income must be regular, it need not be high. Two types of USDA loan are available, the direct and the guaranteed. Direct loans are financed by the government and pay interest rates set through its Housing and Community Facilities Programs. These are available for borrowers with low or very low incomes (under 80 percent and 50 percent of the regional median).

Guaranteed loans, which are taken through standard mortgage providers but backed by USDA, are available for those with incomes of up to 115 percent of the regional median. Direct loans have many more restrictions than guaranteed loans, but they allow a much wider range of buyers to purchase their first properties.

Acceptable Credit History

Your credit history must show that you have no debts that have gone to collections in the previous year, and that your credit score is good. However, those without a traditional credit score due to inactivity rather than bad payments can use methods such as proof of utility and rental payments to show credit-worthiness, making USDA mortgages and home improvement loans much more accessible than other sources of home loans.


If you prefer rural locations, but don't think you can afford to buy a property to live in your chosen area, you might be eligible for a U.S. Department of Agriculture home loan. The USDA plan, which invested almost $20 billion in 2014, is designed to let families in need in rural areas buy and improve the homes that they live in.

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