USDA Loans - The Rural Housing Loan - The Basics

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USDA Loans - rural housing loansUSDA loans in many areas are becoming more popular, yet many loan officers still don't know much about them, hence why they still aren't talked about much. Just as FHA loansweren't used as much as they should have from 2000 - 2006, because subprime and some conventional loans were easier for the loan officer to give to the consumer, even though it might not have been the best loan for them. I am sure in some cases, FHA loans are given before the USDA loan because of the lack of education on the loan officers part.... just my .02.


Some great benefits that USDA loans offer -

  • It's one of only two types of mortgages that offer real 100% financing, with no money down on the property. The other would be VA loans.
  • Just because it says rural development doesn't mean farm land or properties that are miles apart from each other. Ask your loan officer if your property that you are looking to purchase might fit into the property location guidelines.
  • There is no monthly mortgage insurance, even with zero down payment. The only other mortgage like this, again, VA loans.
  • There is no seller contribution limit, just as in FHA loans, to where the seller can contribute up to 6%. It's look upon as reasonable closing costs.  And keep in mind, each state has their own limits to what a lender can make anyhow, usually falling under section 32.
  • 100% of the closing costs can be gifted.
  • The loan amount can include closing costs and repairs up to the appraised value. (call me or e-mail me for more of an explanation)
  • Credit scores of 580 and below are highly scrutinized by USDA. There are many things that need to be looked upon. Scores from 620 and above meet the normal credit standards and get an automatic credit waiver on such things as explaining derogatory credit and rental verifications.
  • Normal qualifying income ratios are 29%/41%. You can exceed these ratios if you have scores above 660 and you don't have to apply for a debt-to-income waiver. Those below 660, you have to have compensating factors and apply for an income ratio waiver.
  • There are income restrictions, yet as of April 20th, 2009, there will be new income limits for the better. Basically the 4 person income limits will now be for 1 person income limits.
  • One important thing to remember, you can't have an in-ground swimming pool if you are using USDA that came from the 2009 stimulus bill. If it's the normal USDA monies allocated yearly, then it's okay, but you need to check on this with your lender.




IMPORTANT -  These are USDA's guidelines, yet lenders can after overlays, to where they might be more critical on credit scores or debt-to-income ratios.  Please keep this in mind.





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Copyright © 2011 by Jeff Belonger of Infinity Home Mortgage Company, Inc

Comments (82)

Debbie Konter-Danville/Avon IN
FC Tucker - Avon, IN
Avon Indiana Agent

HI Jeff

We have been using these programs for about a year now and noticed they take about 45-60 days to process and the only other downfall is the seller can not cover the 2% fee. Thanks for posting this very informative.


Apr 20, 2009 08:07 AM
Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans


DEBBIE......  the lenders that you are using then are either just too busy with not enough internal help or that they just don't know what they are doing. It only takes the USDA about 48 hours, maybe 72 hours to approve it themselves. Each office is different though.  But from our side of things, it shouldn't take more than 3 weeks to fully process the loan, and in many cases, even sooner. Sooner if the loan officer did their job upfront and taking a complete application and got the majority of the documents. Have you found out any reasons to what the lenders are saying, why it takes 45 to 60 days?

In regards to the 2% funding fee.  Why worry that the seller can't cover this fee?  It can be financed into the loan. Just curious..  besides, I would rather use the seller help to pay for the other closing costs.  thanks


Apr 20, 2009 08:15 AM
Paul McFadden
Responsive Pest Control - Seattle, WA
Pest Control, Seattle, WA.

Gerry and Jeff: I believe what I read based on what I pulled from the USDA website. If they haven't updated, I understand. Gerry: I believe you that you have done loans for cities larger than what is indicated. Again, I'm just telling you what I read. Since I'm from Washington state that is what I'm going to reference. This is where I do almost all of my loans as I stated in my comment above regarding income.  I appreciate your knowledge on this but it's obvious that each state is slightly different on its guidelines. Believe you me I have to see if a loan is going to work so am well aware of the guidelines. Jeff: If you don't reference the USDA website in your post, maybe you should. That also is good customer information. Just a thought. Take care.

Apr 20, 2009 12:06 PM

NO money down leads to foreclosure. If you don't have anything invested you are more likely to walk away. These types of loans give Real Estate agents a bad name. Sell junk I don't care. Spend weeks and weeks tranded in loan purgetory. FHA loans are great they require only 3.5% at least its something. Quality is not cheap but it can be affordable.

Apr 20, 2009 02:08 PM
Gerry Suarez Jr.
Jet Home Loans NMLS 1660135 - Maitland, FL
FL Mortgage Guru


And so when you read that HUD accepts FHA loans to a 500 credit score are you going to say that people can get an FHA loan with a 500 credit score? We are responsible for providing our expertise to make all these guidelines and regulations make sense to general public. There is much grey area in our business Paul, but there is also much black or white. This issue of geographic eligibility is a black and white one. It does not vary from state to state so please don't further confuse people by making that claim. You should really speak to your local USDA office and they will be happy to confirm this.

Gerry Suarez, Jr.

Your FHA Loan Pro!

Apr 20, 2009 02:20 PM
Mike Henderson
Your complete source for buying HUD homes - Littleton, CO
HUD Home Hub - 303-949-5848

Great job on talking about the basics.

Apr 20, 2009 05:01 PM
Sukhdev Farmah
Triangle Lending Group - Morrisville, NC

jeff-great information thanks for post . i know my company offer USDA loans but i never look into it because i was thinking it is only for the rural area and farms even my co worker told me many times to check USDA guideline but i never did.But know i am thing this is great program and i also can consider this program for my clients.I will do the more search on this program .Thanks again for the knowledgeable information.

Apr 23, 2009 01:55 PM
Fran Gatti
RE/MAX Integrity - Medford, OR
Managing Principal Broker - RE/MAX Integrity

I have been heavily pushing the USDA loans and have had several closings. There are two very good mortgage brokers in my market who have experience with these programs.  It is certainly allowing more people to purchase a home.

Apr 25, 2009 04:18 AM
Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans


PAUL.... .  what I don't understand is that Gerry and I actually gave you proof, what has been done, it populated areas greater than 20,000 people. It goes back to what you read on other sites. Just because it states something, doesn't mean that it's actually true. An updated site or not...  and when we actually make this statement, but someone wants to argue it because they read differently, yet USDA loans have been done in other areas with more people, to me that is the proof. Not what a web site says. It doesn't matter where you are or are from... Gerry is in Florida and I am in New Jersey, so that is proof that it actually can happen in other states. And it had nothing to do with getting a special waiver or approval.

In regards to referencing the USDA site in my blog, I have done that in my comment... and so have others. And sometimes I don't list the sites for a reason, and here is a great reason. You are getting one piece of info off of a site that is not accurate. I want people to come to me with questions and not go to the sites. That is how I work.  thanks


UNKNOWN comment ...... . how can I saw this politely....  first off, not showing your name tells me a few things. But your comment about skin in the game?  A very weak argument, because I have known many that put 20% down and who still went into foreclosure. You apparently don't understand that the economy has something to do with all of this. Sure, there are some irresponsible people that would walk away from their home, with no skin in the game. But you are just throwing false comments out there just like the media did. Do you really think 3.5% in a property would keep those same people in the house? Before 1/1/09, it was only 3%.  And what about VA loans?  They are 100% and they have done very well.

Overall, it just seems like you are one to argue true home ownership. Most people value owning their own home and would do most anything to keep it, even if they put nothing into it. I had 2 people that put 20% into the property, saying that they were upside down, can't make payments, and would just walk away from the home. Yes, I disagree with your comment 110% and many other great professionals would say the same. but you will always have people disagree. Just that your comment sounds like a basic rant without thinking it through, from both sides.


GERRY.... . excellent point... and HUD doesn't even say that, they say no credit scores.  Well, find me a lender that will go below 500, when HUD says that you can. Yes, it's call education, with the experience behind it, things that can be done and not assumed, just because one allows it. Yet you have to find who can....  to me, that's like misinformation. Yes, it is not state by state as he claimed... thanks for your input.

MIKE.... . thanks for the polite compliment.

SUKHDEV.... . my pleasure and I have always learned in this business especially, that you can't ever assume. Do your research before assuming or making statements. Just my opinion.  thanks and good luck with it...

FRAN.... .  that's good to hear about you bringing this program up to your borrowers. And even better that you have to reliable loan officers that can help with this program and that are knowledgeable.

MICHAEL.... .yes, than can be a great program.  In regards to your statement that these take more time?  That statement in my opinion is misleading though and you don't compare it to anything else. They don't take more time. If anything, 2 more days, because you need to send it to the USDA.  Now, if you are a broker, yes, it could take another 30 days... but we are a mortgage banker.  You should understand some of this, the difference. I went to your site and it seems like you are a lead generator, not a lender, hence why you should know more about this program.  thanks


Apr 26, 2009 04:26 AM
Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans


Just for those following the comments, Michael did leave a comment, yet I asked him to delete his link that led to his web site, which was a lead generator site. He didn't understand why I asked him to take the link out. And then he decided to delete his comment. Here is his comment, minus the the link.

usda comment




I left this comment up here for a reason. There are some false rumors that these loans take much longer. Yes, if you are a broker, because you are relying on another company, who are all backed up. Many are saying that they are taking 45 to 60 days to do a USDA loan. They are still taking us 3 to 4 weeks, because we controls 98% of the process and underwriting them in-house.  thanks


Apr 26, 2009 04:32 AM
Lorinda Ward
Keffer Realty - Norfolk, VA
Serving, Hampton Roads Virginia. Norfolk, Chesapeake, Va Beach

Anytime, I want answers about a loan program, I know I can count on you!  My clients have been coming to me with USDA approvals and I feel a lot of buyers in my area will do better with this type of loan.  I have found that their website is not user friendly (at least for me).

Thank you again and have a great successful day!

May 16, 2009 10:52 PM
Christopher Opstedal | NMLS # 121177
Alpine Mortgage Planning NMLS number 81395 - Tacoma, WA

I love USDA!

Jun 28, 2009 04:17 AM

Right now in WAshington state, USDA loans are out over 4 weeks from when then lender submits packets.  Ours was supposed to close this week, but we have to wait 2 more weeks at least!  We have our current house closing this week and have been asking the sellers of our new house if they will let us move in.  Our lender said this is the worst they have ever seen USDA backed up.  It is so frustrating that they are taking so long!  As of Friday, USDA was just processing loan packets received on July 20th!  Very Frustrating that they are taking so long!

Aug 16, 2009 07:05 AM
Karen Deis - Minneapolis, MN
When In-house training is not enough!

They increased the dollar amount to fund MORE USDA loans--but they never added more staff to handle the increased loan originations.  As always, the government never thinks things "all the way thru"!  You'd think they'd learn...

Jan 03, 2010 11:44 PM
David Jirasek
Jirasek Realty, LLC - Temple, TX

All in all, this seems to be a great program for buyers, expecially with no down payment. However, USDA either laid off employees, or they all took off for vacation during the end of December, as USDA was running weeks behind, thus making us a month overdue on closing, and the buyer having to figure out where to continue living until they could move in, but making not only the listing agent, and buyers agent wait for their "payday", the surveyor, home inspector, and appraiser, where all waiting through Christmas with no money to take home either. It finally closed last week. The local lender is filing a complaint against USDA I hear. It's another great government program!

Jan 21, 2010 11:25 PM
Gita Bantwal
RE/MAX Centre Realtors - Warwick, PA
REALTOR,ABR,CRS,SRES,GRI - Bucks County & Philadel

Thank you for the  great post. I know they are supposed to vote on it this weekend. I wonder if they will be able to close the loans by 30th June.

May 27, 2010 12:32 AM

I purchased a USDA Rural Home Loan, so I can give you firsthand knowledge about it.  Purchasing and closing on the property was easy for me and my realtor. I didn't need any money down, and I didn't even have a job!  SERIOUSLY!  I said I would be doing daycare in this new location, since I had done daycare in my previous town. 

I moved to a rural town (a requirement) of 7,000 people, and could not find daycare parents to sign up.  I ended up taking a job (took me 4 months) in a town 30 miles away, so a 300-mile commute a week. 

USDA Rural home loan would not take into consideration the $2,000 I was spending yearly on gasoline to drive to work.  They subsidized my loan so they were paying part of the payment (about $300 of it.)  They figured that on my income, I could pay about 1/3 of my income in a house payment; however, they do not take into consideration the high utility bills, which ended up costing me (with house payment and utilities) over 1/2 of my income.  After my child graduated from high school, my child support ended. I was no longer able to keep the home, as I was pushing 2/3 of my income into the house payment and utilities.

USDA does not allow you to get a roommate, and they have a "recapture subsidy," so when you sell the home, that $300 a month (or whatever they have subsidized monthly) adds up for the years you stay there.  I was accumulating $3600 a year that I had to pay back.

The way the program is set up, if someone cannot afford the whole payment and has the subsidy, they never own the home.  When they move, they owe thousands of dollars in "recapture" fees.

The only way I could get out of this mess is to claim Chapter 7 bankruptcy foreclosure.  I am now losing this house after 7 years of struggling to keep it, but at least that got rid of the recapture subsidy by filing a chapter 7 bankruptcy.

People who rent subsidized housing never have a "recapture subsidy" to repay!  The USDA Rural Loan is a good way to feel like you own a home, but you never will own it.  You will be very strapped for cash and will also be responsible for repairs, of course. 

I loved my house, but had to live on a lot of rice and beans during those 7 years in order to keep it, and I prayed daily that my car wouldn't break down with my long trek to work daily.  Unless you are extremely frugal, you will never be able to save any cash for emergencies.



Nov 15, 2010 10:44 PM
Barbara S. Duncan
RE/MAX Advantage - Searcy, AR
GRI, e-PRO, Executive Broker, Searcy AR

Heather, you had a USDA RD Direct loan which is vastly different from the USDA RD guaranteed loan as discussed in this blog.  Your payment was subsidized which is a blessing to so many people.  You only repay the subsidy IF you sell the house and make a profit from the sale.  Then the government expects you to repay part of the subsidy but not all of it.  I'd gladly part with a portion of my profit if I made a profit.

Houses with this type financing typically have to have great insulation for low utility bills.  Sounds as if you lived there for quite a while so actually the house may have been a blessing even if you did end up losing it.  I've sold a lot of them and the people are happy in them.

Nov 16, 2010 01:07 AM

With a USDA RD guaranteed loan, are you allowed to get a roommate? I am looking into buying my first home. My income is just under the maximum allowed to get a USDA RD guaranteed loan on the house. But, my sister (a recent college graduate) would be moving in with me. Right now, she only has a part-time job, but I imagine that she will find a higher-paying job. If my name is on the house, but she lives with me, and our combined income is over the maximum allowed, what could happen?



Apr 13, 2011 02:12 AM
Douglas Rawan

Truly agree with the statement “Just because it says rural development doesn't mean farm land or properties that are miles apart from each other. Ask your loan officer if your property that you are looking to purchase might fit into the property location guidelines. “You can visit Drew mortgage associate consultant in case of detailed explanation. You can have free review for your mortgage to maximize your investment and save your money

Oct 20, 2015 12:01 AM