Here’s How to Apply for a USDA Loan in 9 Doable Steps

You’ve always loved the outskirts of your city. And one Sunday on your scenic drive, you notice that the house you’re always eyeing (with that enormous front yard!) is for sale. Many wishful homeowners would just keep on driving and try to forget that their dream home is on the market … but you know how to apply for a USDA loan, so you turn your car around and head home to do just that.

If you’re a would-be homebuyer searching for a home in a rural or even suburban area, you could potentially qualify for a United States Department of Agriculture (USDA) loan. These loans — like FHA and VA loans — are backed by the government. To get one, you’d go to an approved lender, and the government in turn guarantees it for the bank from which you borrowed.

Among its attractive features? You can get a USDA loan with no money down on the house. But only certain homebuyers are eligible.

If you’re shopping for homes in non-urban areas and think you might qualify for a USDA loan, here’s an expert-backed primer on how to get started in the process and how to see it through to approval… and happy homeownership.

Assess your eligibility

First, be aware that you can only get a USDA loan for a house in certain eligible areas that the government deems “rural,” so make sure your area is included; a real estate agent with experience in USDA loans can help.

Then, assess your basic eligibility to qualify. For a USDA loan, you should have a minimum FICO score of 620.

“While the USDA does not designate a minimum credit score, lenders will have a minimum requirement,” explains mortgage loan officer Jane Hammond. “Not only must the ideal candidate have a solid credit score; many times, the credit lines are overlooked.” She notes that a buyer should have at least four active lines of credit.

If you’re not there yet, take some proactive steps to build your credit: Get a credit report, review it and resolve any issues, pay down your balances, and tackle other doable actions to get that FICO score up.

Also, to qualify for this type of loan, you can’t earn more than the USDA income limit for the area where you want to buy. This limit varies depending on where the house is located, so spend some time researching what the threshold is in the region.

“The ideal candidate has solid income but cannot exceed $85,850 for households up to four people. There are higher limits for more expensive areas,” Hammond explains.

It’s not just the dollar amount of what you earn, but also the specifics that comprise your income that count.

“Candidates must have a two-year employment history in the same job or industry. Income can be one of the most complex factors in qualifying for USDA,” Hammond says.

“If a candidate has any unusual income factors, such as commission or court orders, they may need a mortgage professional to work with the lender to document the income in more detail.”

Candidates for USDA must adhere strictly to the housing-to-income and total debt-to-income ratios as well. The housing payment — including homeowners insurance, taxes, the loan principal, and the loan interest — must not exceed 29% of the total household monthly income, Hammond explains. And all debt, including car payments, credit cards, and other types of loans, must not exceed 41% of the total household monthly income.

“One of the best features of the USDA loan is, of course, no money down, but candidates must also have the ability to pay other costs associated with closing a loan,” Hammond says. “Taxes, fees, and title insurance are all examples of costs that must be paid when establishing a loan.”