USDA Loans

USDA Loans

What is a USDA Loan?
USDA stands for United States Department of Agriculture. In the past, USDA Loans were considered "farm loans", mostly used to purchase properties in agricultural areas. That is not the case with today's USDA Loans. In fact, properties in almost every area of the country outside major metropolitan areas can be purchased with a zero-down USDA Loan today.

A USDA loan provides low-cost insured home mortgage loans that suit a variety of options. If you're unsure about your credit rating, or have concerns about a down payment, Classic Home Loans USDA mortgage loans can give you piece of mind with super low closing costs and flexible payment options.

What Types of Loans does USDA offer?

Currently, there are two kinds of USDA loan programs available for single family households:

USDA Guaranteed Rural Housing Loans

USDA Guaranteed Loans are the most common type of USDA loan and allow for higher income limits and 100% financing for home purchases. USDA Guaranteed Loan applicants may have an income of up to 115% of the median household income for the area. Currently for a family size of 1-4 annual income can not exceed $74,050; and for a family of 5-8 the annual income must be under $97,750. All USDA Guaranteed Loans carry 30 year terms and are set at a fixed rate.

 USDA Direct Rural Housing Loans

USDA Direct Housing Loans are less common than USDA Loan Guarantee Program loans and are only available for low and very low income households to obtain home ownership, as defined by the USDA. Very low income is defined as below 50 percent of the area median income (AMI); low income is between 50 and 80 percent of AMI; moderate income is 80 to 100 percent of AMI. For these types of Rural Housing Loans, a borrower must contact the local USDA office directly.

What are the advantages of USDA Mortgage versus Conventional Loans?

USDA mortgage loans offer many benefits and protections that you won't find in other loans including:

  • USDA Mortgages are Credit Flexible
USDA loan requirements are not totally credit score driven, although it is required to have at least a 600 FICO score to obtain an approval through Classic Home Loans. USDA mortgage guidelines are written in a way that provides the borrower the benefit of the doubt that there had been, at some point in their past, circumstances beyond their control, and as long as the borrower has recovered from those circumstances in a reasonable manner, they're generally going to be credit-eligible for an USDA rural loan mortgage.
  • USDA Rural Loans Require Low Monthly Mortgage Insurance
A distinct advantage of a USDA rural loan, as compared to a conforming loan, is great interest rates and very low monthly mortgage insurance (MI). The daily USDA mortgage rates are usually comparable to a conforming 30-Year Fixed loan.
  • USDA Mortgages Require No Down Payment
USDA Mortgages have no down payment requirement. Other loan programs don't allow this.

What factors determine if I am eligible for an USDA Loan?

To meet USDA loan eligibility requirements, your monthly housing costs (mortgage principal and interest, property taxes, and insurance) must meet a specified percentage of your gross monthly income (29% ratio). Your credit background will be fairly considered. At least a 600 FICO credit score is required to obtain an USDA approval through Classic Home Loans. You must also have enough income to pay your housing costs plus all additional monthly debt (41% ratio). These ratios can be exceeded somewhat with compensating factors.  Families must be without adequate housing, but be able to afford the mortgage payments, including taxes and insurance.

How much money will I need for the down payment and closing costs?

Are you curious what is the minimum down payment for an USDA Rural Loan? USDA Mortgage Loans require no down payment and they allow for the closing costs to be included in the loan amount (appraisal permitting).

What property types are allowed for USDA Mortgages?

The property must be Owner Occupied Single Family Residence.

Can I get an USDA Mortgage after bankruptcy?

Criteria for USDA loan approvals state that if you have been discharged from a Chapter 7 bankruptcy for three years or more, you are eligible to apply for an USDA mortgage. If you are in a Chapter 13 bankruptcy and have made all court approved payments on time and as agreed for at least one year, you are also eligible to make an USDA loan application.

 Why choose a USDA Mortgage?

  • USDA Guaranteed Loans require no down payment.
  • There are no prepayment penalties for USDA Rural Home Loans.
  • A USDA Rural Development Home Loan has low monthly mortgage insurance
  • A USDA Rural Development Mortgage is available all rural areas of the country, provided a market exists for the property and the home meets HUD's minimum property standards.
  • A USDA Rural Housing Loan can be used to purchase a new or existing one family home in rural areas. (ALL of Southeast Missouri is considered a "Rural" area except for inside the city limits of Cape Girardeau).
  • USDA RD Loans are offered at terms of 30 years with a fixed interest rate.



What is Considered a Rural Area by the USDA?
Rural areas include open country and places with population of 10,000 or less and—under certain conditions—towns and cities. There is an automated rural area eligibility calculator for USDA Home Loans that you can access by clicking HERE.  You can use this link to look up a property address you might be interested in buying to find out if it is eligible for USDA financing.

What is the Maximum Loan Amount for a USDA Loan?
There is no maximum loan amount for a USDA Rural Development Mortgage. However, it is limited by the appraised value and repayment ability (determined by your household income).

What is the Maximum LTV for a USDA Loan?
The maximum USDA Rural Development Loan LTV can be up to 100% LTV plus the Agency guarantee fee.

Can Closing Costs be Financed into the Loan?
Yes, any difference between the contract price and the appraisal value can be used to finance normal closing costs for a USDA Rural Development Loan.

What is a USDA Loan Guarantee?
USDA Rural Development Single Family Housing Program serves as a safety net for mortgage lenders. The USDA provides the full faith and assurance of the U.S. government that any financial loss resulting from servicing the loan will be reimbursed in full up to an amount not exceeding 90% of the original loan amount.