With flexible credit requirements and no down payment, it’s no wonder USDA loans have become a popular option among today’s homebuyers.
To be eligible, you’ll need to meet credit and income guidelines and purchase a home in an eligible “rural” area, as deemed by the U.S. Department of Agriculture.
For those who qualify, the USDA loan application process looks like this:
The first step in applying for a USDA loan is to find an approved lender. Hundreds of lenders make USDA loans, but some might only make a few of them every year. Working with a lender that specializes in this rural home program can make a big difference for homebuyers.
Once you’ve chosen a lender, it’s time to get prequalified, which is an initial step toward verifying your eligibility for the USDA loan. Prequalification will also give you a sense of what you can afford to buy, in terms of home prices.
The lender will ask you about your assets, monthly debts, gross monthly income and your desired loan amount. They’ll also pull your credit score to see if you meet USDA and lender guidelines.
You’ll typically need at least a 640 credit score to get prequalified for a USDA loan.
You may be able to obtain USDA loan prequalification and preapproval online, depending on the lender you choose. Some lenders have the technology in place for borrowers to upload documents and move through the process electronically.
Your first big step is to get preapproved. Preapproval gives buyers a clear look at their purchasing power and signals to home sellers that you’re a strong buyer.
To get preapproved you may need to provide your lender with the following items:
Additional documentation is often required.
Your lending team will verify information and assess your purchasing power and home loan affordability. If everything looks good, the lender will issue a preapproval letter. This isn’t a guarantee of funding, but it’s a sign of confidence that you have what it takes to get to closing day.
Depending on your credit score, your income, the debt-to-income ratio and other factors, your loan may be automatically approved for underwriting. If your loan is not automatically approved, the lender may underwrite your loan manually, which typically involves more stringent requirements.
Now, it’s time to make sure you’re buying in a qualified rural area. The good news is most of the country meets the agency’s broad definition. You can use our online tool to find USDA-eligible communities. Once you’ve found a property, made your offer and signed a purchase agreement, your lender will begin underwriting your loan.
During the underwriting process, your lender is looking to verify information regarding your ability to repay the loan and that there have been no major changes to your finances, income or debts since your preapproval. They’ll also evaluate the home’s appraisal to make sure the property meets guidelines and requirements.
Lenders then send your loan file to the USDA for underwriting review and approval as well.
Once the lender and the USDA sign off on your loan file, you’ll receive a Clear to Close, which means you’re ready to head to closing day.
Closing days are often outlined in the purchase agreement. When that day comes, you’ll sign the final paperwork and get the keys to your new home.