5 Most Common USDA Loan Myths Debunked

USDA home loans are one of the lesser known home loans in the US. Though a large number of borrowers have already benefited from the loan program, a lot of people are still apprehensive about it. Many people don’t apply for a USDA loan due to various myths associated with these loans. Here, we take a close look at five such myths around USDA loans, and also discuss their respective realities.

1. “Only farmers can obtain USDA loans”

One of the common misconceptions home loan borrowers have about USDA loans is that one has to be a farmer to obtain a USDA loan. These loans are available to all borrowers as long as they do not exceed the income maximum and the property is located in a designated USDA eligible area. The maximum income up to which a borrower qualifies depends upon the area where the borrower wants to purchase their property and its median income.

2. “USDA loans aren’t truly zero down payment.”

Many home loan borrowers assume that VA loans are the only loans that require no down payment. This, however, is not true. There are a few more loans that do not require any down payment. USDA is one such loan option, which allows borrowers to finance up to 100 percent of the property value. In fact, the USDA home loan even allows the borrower to “roll in” the closing costs into the loan allowing for more than 100% financing. The caveat here is that the property must appraised for the total loan amount, or above. Ask one of our mortgage experts for more details.

3. “USDA loans can’t be obtained more than once.”

There is no restriction on the number of times you can apply for and obtain a USDA loan. Whether you are obtaining a USDA loan for the first time or 101st time, the USDA will not deny you a loan unless you do not meet their qualifying criteria, of course.

4. “USDA loans are approved only in underdeveloped areas.”

USDA loans can be obtained only for those properties that lie in rural designated areas. Most people have a notion that areas designated as rural are underdeveloped. This however, is not true because many neighborhoods and subdivision fall within very developed areas. In addition, many areas on the outskirts of major cities around the country also qualify for USDA loans.

5. “USDA loans have tough credit qualification criteria.”

USDA loans do not require a stellar credit score. You may have a credit score less than the ones required by traditional loan programs and you could still be eligible for a USDA loan. Similarly, home loan borrowers with no ‘established credit history’ may also qualify for a USDA loan on the basis of their insurance premiums, savings, utility bills and more. The home loan rates may however vary depending upon the credit score.


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