USDA loans for homes outside the city

Who USDA loans are for

The USDA guaranteed loan program exists to help moderate-income families buy homes in rural areas. It is not a farm loan. It covers ordinary houses in small towns and the countryside, and in the four-state area that includes a lot of places people already live.

Two things decide whether you fit. First, the property has to be in an eligible area on the USDA's map. Texarkana itself is generally not eligible, but many of the smaller towns and unincorporated areas around it are. Second, your household income has to fall under the limit for the county, and that limit counts everyone living in the home, not just the people on the loan. I check both in a few minutes with an address and a rough income figure.

How it works

The USDA guarantees the loan and a lender funds it. Most borrowers put nothing down. Instead of mortgage insurance, the program charges an upfront guarantee fee that can be rolled into the loan and a small annual fee paid monthly. Both are generally lower than FHA's premiums, which is why a USDA loan often ends up with a lower payment than an FHA loan on the same house.

USDA loans are 30-year fixed loans on a primary residence. The house needs to be modest for the area and in decent repair, and the appraiser checks that it meets the program's property standards.

What to bring

USDA underwriting looks at the whole household, so I will ask for a little more than usual:

• Pay stubs and two years of W-2s or tax returns for every adult in the home, including people who are not on the loan
• Two months of bank statements
• The address of the home, or the towns you are looking in, so I can check the eligibility map
• A photo ID and permission to pull credit

Things people get wrong

USDA has a reputation it does not deserve. A few corrections:

• You do not need to be a first-time buyer.
• You do not have to buy land or a farm. A house on a normal lot in an eligible town qualifies.
• Income limits are by household and by county, and they are higher than most people expect for a family.
• The USDA does not set a minimum credit score. Lenders set their own, and automated underwriting does a lot of the deciding.
• Closing can take a little longer than FHA because the file goes to the USDA for a final review after the lender is done. I plan for that in the contract.

What happens next

Send me the address and I will check the map the same day. If the home and your household both fit, I run the file through the USDA's automated system and a lender's underwriting, and you get a pre-approval you can shop with. If the home you love turns out to be a few streets inside an ineligible area, I will show you what FHA or conventional looks like on the same house so you are not stuck.

All loans are subject to credit approval, and program terms vary by lender.