Demystifying USDA Loans

Chances are, you have heard of FDA and VA loans. But have you heard of USDA loans? And did you know that you don’t need to buy a farm to use one? If you live in a rural area and if your income is below 115% of the median household income, you might be eligible.  

My clients recently used this loan option to buy their dream home in Bryans Road, Maryland, which is less than 25 miles South of Washington DC. Could this program be right for you? Read on to learn more!

Why was the USDA loan program created? 

This program helps lenders work with low- and moderate-income households living in rural areas to make homeownership a reality. Providing affordable homeownership opportunities promotes prosperity, which in turn creates thriving communities and improves the quality of life in rural areas. 

What does the USDA loan program offer?

This is a pretty good deal if you qualify!

  • No money down, 100% financing 
  • No mortgage insurance
  • Low interest rates 

My client got a 4.5% rate in January 2024 when the current average interest rate was 6.75% for a conventional loan.

Requirements to use a USDA loan: 

There are certain boxes you have to check in order to qualify for a USDA loan. Aside from the income eligibility test linked above:

  • The property must be your primary residence
  • The purchaser must be a U.S. citizen 
  • The property must be located in a rural area 

Other things to know about using a USDA loan:

Not that there is a catch, but there are some points to consider if you’re thinking of using a USDA loan. For example, extended timelines, one in your control and some out of your control.

In your control: It took my client two months from their initial application until they were approved. So it pays to plan ahead! 

Out of your control: Once my buyer found their house and their offer was accepted, we were under contract for 70 days. That means the Seller had to be flexible on timing for all contingencies, not something we had any control over!

Out of your control: The program is strict on inspection items; you are required to submit your home inspection report to the lender and there were additional lender-required repairs that the Seller needed to fix in order for us to close. All work needed to be completed prior to giving approval for the loan to close with proof of invoices and photos of completed work.

USDA Loan Curious? Here are my recommendations: 

  • Start the application process at least 6-8 months before you are ready to buy.
  • Make sure you look at the eligibility map before you decide to apply, to confirm you are comfortable with what areas are and are not eligible to use the USDA loan program in.
  • Apply directly with the USDA loan program, through their USDA direct system. They will set you up with a representative who will receive and deliver all required documents into the USDA loan program portal to speed up the process. It could take an additional 3 months if you do not use the USDA direct program.
  • Work with an experienced real estate agent who has past experience with USDA buyers. The process is extended and extensive. An agent who has not used the program before may not be able to assist you with what is required. 

Contact our team today to find out how we can help you use this helpful program for your next buying experience!

Work with Malia Teresek

An accomploished agent licensed in MD, VA, and DC, Malia's expertise spans homebuying, selling, investment, and property management, making her the go-to professional in the DMV. As a dedicated investor in real estate herself, Malia brings a unique perspective to her clients, ensuring their real estate aspirations are met with unparalleled knowledge and care.