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USDA Loan Prequalification and Preapproval

Dreaming of an affordable home in a rural or suburban location? A USDA loan, which is a loan insured by the U.S. Department of Education, can help you achieve this major life milestone. But before shopping for an eligible residence, it’s a smart idea to pursue USDA loan prequalification or, better yet, preapproval.

Read on to learn the differences between prequalification and preapproval, why they’re important, the steps involved, and more.

A Closer Look at USDA Loan Prequalification

Prequalification is an informal estimate of the loan you could qualify for based on self-reported information. Think of it as a quick first step to gauge how much house you might be able to afford.

“When you get prequalified, you share basic information, like your income, debts, and credit score, typically over the phone or online. The lender then gives you an estimate of your loan amount without verifying details,” explains Steven Glick, director of mortgage sales for HomeAbroad.

During the USDA loan prequalification process, you’ll complete the following steps:

  1. Contact a USDA-approved lender.
  2. Provide basic financial information, including gross monthly income, employment, assets, and monthly debts.
  3. Undergo a credit check. During prequalification, the lender usually performs a soft credit inquiry, which doesn't impact your credit score. Some lenders may request a hard credit inquiry during prequalification to obtain a more detailed look at your credit history. A hard credit inquiry may slightly lower your score.
  4. Receive an estimated loan amount quickly.

“Prequalification is super quick, often providing an estimate in an hour or less, especially if you do it online,” Glick notes.

You can begin to determine your loan amount with this USDA loan calculator.

A Closer Look at USDA Loan Preapproval

USDA loan preapproval takes things one step further. Here, you submit necessary documents and the lender checks your credit, verifies your finances, and confirms your eligibility for a USDA home loan based on factors like your income and chosen location.

“Preapproval is a commitment in writing that involves verifying your documents, a credit check, and in some cases, even underwriting,” says mortgage expert Andreis Bergeron with RedAwning.com. “It’s basically a lender saying, ‘You're approved — subject to the property details.’”

Preapproval steps include:

  1. Complete a full USDA mortgage loan application.
  2. Provide supporting documents (more on this later).
  3. Undergo a credit check. The lender will perform a hard credit pull, which can slightly lower your credit score, usually by no more than five points for a single hard inquiry. This hard inquiry usually lowers your credit score for about a year. Although it remains on your credit report for two years, most credit scoring systems only count inquiries from the last 12 months when determining your score. “If you’re shopping among several different lenders, having your credit pulled by each of them could lead to a more significant drop in your credit score,” cautions Matt Schwartz, a mortgage broker with VA Loan Network.
  4. Receive a preapproval letter after the lender reviews your file. This letter is typically valid between 60 and 90 days. Your real estate agent can provide a preapproval letter to a home seller to demonstrate your creditworthiness and seriousness as a buyer.

The preapproval process commonly takes one to three business days, according to Brian Vaughan, a licensed loan officer and co-branch manager with Fairway Independent Mortgage Corporation. However, in some cases, it can take up to two weeks, depending on the lender’s workload and how quickly you furnish the necessary documents. Preapproval for USDA loans is usually more complex than other loan types due to checking on location eligibility and income limit verification. Credit standards could also differ slightly from conventional, FHA, and other types of loans.

Once preapproved, you’ll know the exact loan amount you can afford, and home sellers will have additional confidence in any offer you place. It’s why a preapproval is more desirable than prequalification. However, it’s important to remember that preapproval does not guarantee a home loan. You may need to meet certain conditions for preapproval and final USDA loan approval.

“Keep in mind that any USDA preapproval you receive is tied to that particular lender, and is only as reliable as the lender and loan officer who issued it,” says Schwartz.

Why it’s a Good Idea to Get Prequalified or Preapproved

Getting prequalified can help you establish realistic expectations early on in the process and gives you a budget snapshot so you don’t chase homes you can’t afford.

“Think of it like a compass leading you in the right direction,” says Bergeron. “In contrast, preapproval is like the map. It signals to sellers and agents that you are serious and financially vetted, which can be vital in competitive rural markets.”

Getting at least prequalified checks several boxes, according to Vaughan. “It shows sellers that you are eligible for financing, provides you with a clear budget, and helps catch credit and financial issues early. Without prequalification or preapproval, you could be wasting your time or you risk losing out on homes to better-prepared buyers,” he says.

Bergeron cautions that inventory can be tight in rural and suburban areas where USDA loans are common. “I’ve seen deals evaporate because buyers didn’t get preapproved before making offers on USDA-eligible homes,” he says.

The Documents You’ll Need

While you won’t need to gather documents for USDA prequalification, you’ll collect the following important items for preapproval:

  • Recent pay stubs (usually within the past 30 days) to verify income stability and current earnings
  • W-2s and tax returns from the past two years
  • Business records, if self-employed
  • Evidence of other income, such as side gigs, alimony or child support, Social Security, disability payments, or pension payments
  • Account statements for investments, such as IRAs, CDs, mutual funds, and more
  • Recent bank statements (usually over the past 60 days) to demonstrate assets and reserves
  • Government-issued photo ID for identity verification, such as a driver’s license or passport and Social Security number/card
  • Employer contact information for the past two years
  • Debt details, such as student loan statements
  • Completed credit authorization form for permission to pull your credit

Your lender may require you to submit other documentation — just ask if you have questions.

“These documents ensure you will meet the USDA’s income limits and can handle loan repayment, preventing surprises during the loan underwriting process,” Glick continues.

What To Do If You Are Denied After Preapproval

Receiving full approval isn’t a slam dunk, even if you’ve been preapproved for a USDA loan. You can still get turned down for a loan during the approval process. Common reasons include:

  • Losing your job, indicating you may have future difficulty paying off your loan
  • Adding new debt, such as a car loan, which could throw off your debt-to-income ratio
  • Household income exceeding the USDA income limits
  • Home location in an unqualified USDA area
  • Failing the appraisal due to repairs needed
  • New late payments or a drop in your credit score
  • Inaccurate or missing documents
  • Credit score dipping beneath the lender’s acceptable threshold

“I’ve also seen USDA deals derail because the buyer’s non-borrowing spouse earned too much money or because a side gig wasn’t documented properly. Remember that lenders verify everything, but what most buyers miss is that the USDA counts total household income, not just earnings from the loan applicant,” says Schwartz

If you are ultimately denied a USDA loan, don’t lose hope. Ask the lender why you were denied. Vaughn suggests fixing any issues, like improving your credit, paying down outstanding debt, and increasing your income.

If your earnings are too high, explore alternative financing, such as an FHA or conventional mortgage. If the problem is an ineligible property, look closer at USDA-eligible rural areas and choose a property that stands a better chance of passing the appraisal.

“If necessary, wait a few months, save more funds, strengthen your financial profile, and work with a USDA-savvy lender to reapply for a loan,” advises Glick.