USDA Mortgage Calculator – Forbes Advisor
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The United States Department of Agriculture (USDA) supports homeownership opportunities for low- and middle-income Americans through several loan, grant, and loan guarantee programs. For qualified borrowers, USDA loans are issued directly through USDA Rural Development or an approved lender.
Use this calculator to estimate what your monthly payment might be for a USDA mortgage.
How to Use the USDA Mortgage Calculator
To use this calculator, you will need to enter values for some basic information, including the estimated price of your home, down payment, loan term (in years), and interest rate.
USDA loans don’t usually require a down payment, but you can enter an amount to see how much lower your monthly payments could be if you chose to put money aside.
What costs are included in a USDA mortgage?
As with any other mortgage, there are costs associated with obtaining a USDA loan, although some are included in your monthly mortgage payments.
- Director: This is the amount of money you borrow from the USDA or an approved lender to buy a home.
- Interest: The additional cost of the loan, which you pay as part of your monthly loan repayments. Over time, with interest, you will owe more than the original amount of capital you subscribed.
- USDA Guarantee Fee: The USDA requires lenders to pay a non-refundable guarantee fee upfront, which is generally passed on to the borrower. The fee will not exceed 3.5% of the principal loan amount.
- Property taxes: Property taxes are taxes levied by your local government based on the value of your home. They are usually collected as part of your monthly mortgage payment and then paid to the relevant authority through your escrow account.
- Home insurance: A home insurance policy covers loss and damage to your home. You’ll need to get one to show the lender that your property (and its investment) is protected if something unexpected happens, like a fire.
To note: You do not need to obtain private mortgage insurance (PMI) with a USDA loan. Instead, you pay a 1% upfront fee or roll it into your monthly mortgage payment. Your monthly mortgage payment will also include a small annual USDA commission of 0.35%.
How to Qualify for a USDA Loan
Here are some of the requirements you must meet to qualify for a USDA loan:
You must live or plan to live in an eligible rural area to qualify for a USDA loan. Additionally, if you are applying for a direct USDA loan, the home you wish to purchase must:
- Be 2,000 square feet or less
- Not have a market value greater than the relevant value zone loan limit
- Be your primary residence
Income limits for USDA loans vary by program and location. For secured loans, your income cannot exceed 115% of the median income in your area. Income caps for direct-issue loans are much lower, as low as 50% of median income in some areas.
Debt-to-income ratio (DTI)
To qualify for a USDA loan, your total debt-to-income ratio (DTI) must not exceed 41%. In addition, your monthly housing-related expenses (mortgage payments, taxes, etc.) cannot exceed 29% of your income.
The USDA does not impose a minimum credit score, but the agency requires that a potential borrower:
- Being without decent, safe and healthy housing
- Not being able to obtain a mortgage from other sources on terms reasonably likely to meet
- Have the legal capacity to enter into a loan obligation
- Meet citizenship or non-citizenship requirements
- Be able to participate in federal programs
Most lenders will have minimum credit requirements for any mortgage products they offer, so check with your lender to see if you meet their threshold.
Is a USDA mortgage right for me?
A USDA loan is intended to help low and very low income borrowers get a foot on the home ownership ladder, especially those who have no other way to afford a home. If you fall into this category, a USDA loan might be right for you.
However, if you are not eligible, for example if the home you want does not meet USDA requirements, then you will need to explore other affordable loan options. Additionally, the no-down payment nature of a USDA loan also means that it will take you longer to repay the loan.
USDA loan vs. conventional mortgages
One of the main advantages of a USDA loan is a lower interest rate than a conventional mortgage. USDA loans are also available for borrowers whose credit scores are too low to qualify for a conventional mortgage.
Frequently Asked Questions (FAQs)
USDA loans are issued or guaranteed by the Department of Agriculture under its rural development program. The objective is to promote home ownership in rural areas by offering very affordable mortgages to low-income borrowers.
Where can I get a USDA loan?
If you meet the income limits, you can apply for a loan directly from the USDA, otherwise you can work with a USDA approved financial institution. Forbes Advisor has compiled a list of best USDA mortgage lenders that offer competitive interest rates, low APRs, discounts and more.
What are the interest rates for a USDA loan?
As of August 1, 2022, USDA loan interest rates range from 3.25% to 6%, depending on your lender, credit, and other qualifying factors. However, interest rates can be as low as 1% when modified by payment assistance, according to the USDA.
Why Get a USDA Mortgage?
If you live in a rural area, have a low income, or don’t have enough money for a down payment, the best way to get a mortgage is to apply for a USDA loan. Because these loans are federally insured, the lender is willing to offer you more favorable loan terms. The low interest rate, along with the absence of PMI, means that your monthly payments will be much more affordable compared to a conventional mortgage.