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If you are looking for a more rural and suburban lifestyle — where the cost of living is typically lower — a USDA home loan could save you money on your down payment and interest rate.
The ability to work remotely has created a unique opportunity to live anywhere you want. As COVID-19 restrictions are slowly lifted, more than a third of employees report continuing to work from home regardless of their workplace opening back up.
There’s just one thing — to get a USDA home loan, you need to find an eligible property. That’s where the USDA home loan map comes in.
What Is a USDA Loan, and How Do You Apply For One?
Mortgages from the U.S. Department of Agriculture are loans that are meant to support low-income families in finding affordable housing outside of major cities. These loans are often a good option for borrowers who wouldn’t otherwise qualify for a traditional mortgage.
The unique benefit of a USDA loan is that it doesn’t require a down payment — which is often the biggest financial barrier to homeownership. The loans run for 30-year terms at fixed interest rates (slightly lower than conventional loans) and can be used to purchase owner-occupied, single-family homes and condos.
The USDA loan application process starts with determining your eligibility, which depends on your income, credit score, and other debt. If you qualify, you can work with a USDA-approved mortgage lender to secure a mortgage pre-approval and start shopping for USDA-approved homes.
Eligibility Requirements for USDA Home Loans
The terms of a USDA loan can be great, but they’re not for everyone. To make sure you will qualify for one, you’ll need to meet the following criteria:
- Your income needs to be within 115% of the median household income limits specified for your area
- You must be a U.S. Citizen, U.S. non-citizen national, or qualified alien
- You will likely need a credit score of 640 or above
- Debt obligations should not exceed 41% of your pre-tax income
- You must agree to personally occupy the dwelling as your primary residence
And the property itself must meet these requirements:
- It must be located within an eligible rural area
- It must be a single-family dwelling (which includes condos, modular, and manufactured homes)
- There is no acreage limit, but the value of the land must not exceed 30% of the value of the home
What Qualifies as a “Rural” Area
Before you fall in love with any particular home, you’ll need to understand which areas in your community are eligible for the USDA program. The way the USDA defines “rural” areas depends on where you live.
“In general, these areas are defined as open country that’s not part of, associated with any urban area,” said Ernesto Arzeno, a mortgage loan originator with American Bancshares.
The rule of thumb is areas with a population with less than 10,000, Arzeno said, although that rule is not hard and fast. For some areas, depending on homeownership rates, the USDA allows populations up to 35,000, but never higher than that. And the designations may change as the USDA reviews them every few years.
The only way to know for sure is to use the USDA Home Loan Map.
How to Use the USDA Home Loan Map
The USDA’s interactive home loan map is the tool that lets you see if a property is eligible. It works in two ways: You can search directly for the address of a home you’re considering, and it will give you an answer about eligibility. Or, you can navigate around the map to see which areas generally are considered rural.
Here’s a step-by-step guide to using the map:
- Open the USDA Home Loan Map here.
- To check on a specific address, type it into the search bar at the top-left corner of the map, and hit “Go!”
- The map will zoom you into this address, drop a pushpin, and give you one of two answers:
- “This address IS located in an eligible area.”
- “This address is not located in an eligible area.”
- To remove the pushpin and keep searching, click the pushpin button at the top of the map next to the search bar. This will remove the pinned location and allow you to search again.
- If you’re not sure about a specific address, you can zoom out and look at an entire region. You’ll see that cities and urban areas are covered in an orange overlay — this means the area is not considered rural and not eligible for USDA loans. Any area outside of the orange zones, however, is considered rural and eligible.
- There’s one other way to use the map without an address: Once you’ve navigated to an area you’re interested in, you can simply click anywhere on the map to drop a pushpin. From there, a popup will tell you whether or not this location is eligible.
You’ll find that using this map is not so different than using Google Maps or other similar tools. But here are a few things to remember when using the USDA home loan map:
- When entering a specific address, make sure to include the ZIP code for an accurate search.
- To start over and remove all addresses, you can simply refresh the page in your browser.
- There’s a third message you may receive when searching for an address: That eligibility can’t be determined. In this case, you’ll need to contact a USDA office directly.
- To print a copy of the map, click the printer icon at the top of the screen. A popup will appear, allowing you to click print, and then a PDF will generate for you to save and print.
Is a USDA Home Loan Right for You?
USDA Home Loans can be a great pathway to homeownership, especially if you’re looking to live outside of a big city. But with any loan, there are pros and cons. Here’s what to consider.
Putting no money down means you will pay interest on a higher balance.
You need to meet strict income and debt criteria to qualify.
The approved loan amount of USDA loans is usually lower than conventional loans, decreasing your buying power.
A monthly funding fee (similar to private mortgage insurance) is added to the loan payment. It can’t be canceled after reaching 20% equity.
It’s important to highlight the financial downsides. Skipping a down payment means you could have a large loan amount to pay interest on. Plus, a monthly funding fee will apply for the full duration of any USDA loan. With that, make sure to consider all mortgage financing options to see which will be the best fit for you.