California USDA Loans – USDA Rural Development Loan
Do you want to purchase a home in California? If so, you may be pleased to learn about the USDA rural development loan. This program offers the opportunity to purchase a home without any down payment.
The United States Department of Agriculture created the rural development loan (also known as the “USDA guaranteed loan” or “USDA rural housing loan”) to help promote home ownership for lower and middle income households. While these mortgages are known for assisting low income families to buy a home in a rural area, USDA loans are actually available to moderate income households as well.
Advantages of the USDA Rural Development Program
Below are some of the benefits that USDA loans offer:
- No Down Payment – USDA loans do not require any down payment.
- Finance Your Closing Costs – You can also include the closing costs in your loan.
- Low Income Accepted – USDA loans were created to help promote home ownership for lower and middle income households.
- Low Mortgage Insurance – The monthly mortgage insurance on USDA loans, called the “guarantee fee” is lower than it is for other government-backed mortgages, such as FHA loans.
- Fixed Interest Rates – All USDA home loans are provided on a fixed mortgage rate. This means that the interest rate stays the same and does not adjust or fluctuate like they do with an adjustable rate mortgage (ARM), which can cause sudden spikes in rates and payments.
Would you like to see if you qualify for a USDA loan? We can help match you with a mortgage lender that offers USDA loans in California.
USDA Home Loan Requirements:
Below are some of the basic requirements for USDA loans:
- Credit Requirements – A minimum credit score of 640 is required to get a USDA loan (with an automated approval). If your credit is below a 640, you may be able to get an exception (however, it will require a manual approval by an underwriter). An exception is usually made if you have sufficient compensating factors.
- Income Limits – The USDA has limits to have much total household income you may have, which can not be more than 115% of the median average income. You can view the 2022 USDA income limits for any location using this USDA income limits lookup tool.
- Owner Occupied – USDA loans are only available for owner occupied properties. This means that you must occupy the home as your primary residence.
- Guarantee Fee – All USDA loans require you to pay two different guarantee fees (which is basically the same as mortgage insurance). This includes an upfront guarantee fee of 1%, and an annual guarantee fee of .35% (which is added to your monthly payment). If you would like to estimate your monthly mortgage payment, and the USDA guarantee fees for your new mortgage, use this USDA loan calculator.
- Property Eligibility – USDA loans are intended for rural properties, therefore they are not available to finance properties in cities or larger towns. You can lookup what areas are eligible for a USDA loan using the USDA property eligibility search.
These are just some of the basic requirements to get a USDA loan. You can view more detailed requirements for USDA loans on this page. If you would like to have a loan representative answer your questions about USDA loans, we can match you with a lender that offers USDA loans in California. The lender that we match you with will provide you with a free consultation, and also the opportunity to get pre-approved for a USDA loan.
USDA Loan Frequently Asked Questions:
Below are some of the most frequently asked questions about USDA loans. You may also view more questions and answers about USDA loans, on this USDA loan FAQ.
Do USDA loans require you to be a first time home buyer?
No, you do not have to be a first time home buyer. You can be a previous homeowner and still qualify for a USDA loan. If you currently own a home, you must sell it though, since USDA loans are only for a primary residence, and not a second home, investment property, or vacation home.
What is the maximum amount that I can borrow?
There are no exact loan limits for USDA loans, as there are for other loan types such as FHA and conforming (conventional). The amount that you personally can borrow will be determined mostly based upon your debt-to-income ratio. This is calculated based on your monthly income and monthly debts. The max DTI ratio (unless you have “compensating factors” such as savings or great credit), is 43%. So if you make $5,000 in combined income, your total debts (mortgage payment and other debts such as auto loans and credit cards), must not exceed $2,150/month (which is 43% of the $5,000 example we are using here).
What refinancing options exist for USDA loans?
Once you have a USDA loan from the original purchase of your home, you may be able to streamline refinance on future loans. This is the equivalent of the FHA or VA streamline programs, and is an incredible refinance product. The USDA streamline refinance provides an easy way to quickly reduce your mortgage payment. It does not require a new appraisal (the one from your original purchase is used). You do not have to submit any documentation for your job or income, and no credit check is required. It is an easy and efficient way to lower your interest rate and mortgage payment.
If I was rejected for a USDA direct loan, can I apply for the USDA guaranteed loan?
Yes, you absolutely can. Many individuals or spouses who apply for the direct loan are turned down due to not meeting the various requirements, such as those related to income, can still qualify for the USDA guaranteed loan. The direct loan is for the lowest income borrowers, whereas the guaranteed loan allows a little more than the median income to be eligible.
Can I use a USDA loan to purchase a duplex?
The only way you are allowed to purchase a duplex is if you buy only one of the two units. You are not allowed to buy both units of a duplex (or 3 units in a triplex, or 4 units in a fourplex). You can only buy one unit of the multi-unit property, or a single family residence (detached home, or in plain words, your typical single unit house).
Are USDA loans available to purchase a farm or agricultural property?
In spite of being backed by the United States Department of Agriculture, USDA loans are not available for agricultural properties or farms of any kind. It is common to assume they would be, but the USDA rural housing loans are only for residential properties.