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5 Steps to Finding the Right USDA Lender

The USDA loan program was established to boost homeownership for Americans who want to purchase in qualified rural or suburban areas. The program allows eligible homebuyers to buy a home for $0 down through a USDA approved lender.

Each year the USDA publishes guidelines for eligibility based on income and property location, including income limits designed to ensure that USDA loans go to those who need them most.

You're generally eligible if your annual income is:

  • Less than $110,650 for a household of 1-4 people
  • Less than $146,050 for a household of 5-8 people

While the USDA makes provisions for how its home loan program works, it's up to USDA-approved lenders to decide who qualifies for financing. If you're thinking about getting a USDA loan, it's important to find an experienced USDA lender.

How to Compare Top USDA Lenders

Since it's guaranteed by the federal government, there are several ways that a USDA mortgage differs from a conventional loan.

While that doesn't always mean extra red tape, it can mean a significant learning curve if your loan officer has never worked with a USDA buyer before.

How can you find the best USDA lenders?

1. USDA Loan Expertise

If you're shopping for a USDA approved lender with some experience, there are a couple of key questions you should ask:

  • How much of your business comes from USDA loans?
  • Do you offer special USDA loan training for loan officers?

The best USDA lenders have experience with this specialized loan product. Being specialized doesn't mean this product is more difficult, but lenders and loan officers who know the ins and outs can help you get the most from this program.

Staff education is also crucial. USDA lenders that provide specialized USDA loan training are more likely to understand the ins and outs of the loan process. This means less bumps along your road to homeownership.

2. Customer Service and Satisfaction

Quality of customer service can make or break your home loan experience. Reading online reviews can give you a sense of the actual experience of working with a particular lender. Pay attention to how they treat customers in addition to their track record.

Another question to ask a potential lender is how they handle bad credit. The USDA loan program's primary goal is expanding access to homeownership. The best USDA lenders have looser credit guidelines than conventional loans to make it possible to qualify for a USDA loan with bad credit. Borrowers with qualifying income and a mid-FICO score of at least 640 will generally pass muster.

3. Structure of Loan Process

Be sure to ask your lender how their process works. Some USDA lenders are set up like a conveyor belt, passing borrowers from person to person at each stage of the loan process. Others use a dedicated team structure.

USDA approved lenders with dedicated teams can help provide a better quality customer experience. You'll get to know your loan officer throughout the homebuying process. Other companies might sacrifice personal connection for the sake of efficiency.

Depending on your priorities and personal preferences, each set-up has its benefits and drawbacks.

4. Compare Rates

Before starting the homebuying process, it's a good idea to get a general sense of current market interest rates. That being said, don't get too attached to the rates you see online.

The interest rate you ultimately lock in for your USDA loan depends on your credit score, debt-to-income ratio, and other factors. On top of that, rates change on a daily basis or even hourly basis as economic markets fluctuate.

A good USDA lender can help you determine the best time to lock in your interest rate, but you'll have to be under contract for a home first.

5. Ask the Right Questions

After you've researched the best USDA lenders and narrowed the playing field, it's okay to keep asking questions until you feel comfortable moving forward with your loan application. After all, buying a home is a big deal, and you want to be sure you've found the right USDA lender to walk you through the process.

Be sure to ask:

  • What kind of credit score do I need?
  • What kind of debt-to-income ratio do I need?
  • What will happen if my scores or debt-to-income ratio fall short?
  • Do you provide any homebuyer education?
  • How much of your business comes from USDA loans?
  • Do you have an in-house underwriting staff?
  • How do your rates compare to other lenders?
  • What fees will you charge?
  • Do your loan officers have any special USDA loan training?
  • Are your loan officers familiar with the needs of USDA homebuyers?
  • Will my loan officer work closely with my real estate agent?
  • Will I work with the same loan officer from start to finish?

Armed with knowledge and an experienced USDA approved lender, USDA homebuyers can take advantage of the immense benefits of this no-money down loan program.