The USDA guaranteed loan lets you buy with $0 down and a lower monthly fee than FHA, as long as the home sits in an area USDA calls rural and your household income stays under the limit for that county. "Rural" covers far more ground than most buyers expect, including small towns and the outer edges of plenty of Florida metro areas. The tradeoff is that USDA has the tightest debt ratios of any program and a household income test that counts people who aren't even on the loan.
What USDA checks
| Requirement | The rule |
|---|---|
| Location | Address must be in a USDA-eligible area |
| Household income | At or under the county's moderate income limit (about 115% of median) |
| Down payment | $0 |
| Credit score | No fixed USDA minimum; most lenders want 640 |
| Debt ratios | 29% housing, 41% total; higher with a GUS Accept |
| Upfront fee | 1% of the loan, financed |
| Annual fee | 0.35%, paid monthly |
| Seller contributions | Up to 6% of the price |
| Property | Single-family primary residence |
| Co-signers | Not allowed |
Location: the address has to qualify
USDA guarantees loans only in areas that meet the rural definition in federal housing law. The test is the property address, and you check it on USDA's eligibility map. In Florida, a lot of eligible area sits outside the dense city cores, including many small towns and the farther-out parts of growing counties. The map gets redrawn from time to time, so check the exact address before you fall in love with a house.
Household income: the test that trips people up
USDA has two separate income tests, and buyers mix them up all the time.
Annual household income decides whether you're eligible at all. It counts the expected income of every adult who lives in the home for the next 12 months, whether or not they're on the loan. A working adult child or a roommate who lives there counts. From that total, USDA subtracts set deductions for each child under 18 and each full-time student or disabled dependent, a deduction for a household where a borrower is 62 or older or disabled, reasonable child care for kids 12 and under, and certain medical and disability costs above 3% of income. The result is your adjusted annual income, and it has to be at or under the moderate income limit for your county. That limit is roughly 115% of the area median, with a higher limit for households of five to eight people.
Repayment income decides how much you qualify for. It counts only the stable income of the people signing the loan. That's the number used in the debt ratios below.
Run the address and your household size through USDA's eligibility site to see your county's limit. A household that earns too much for USDA is often a strong fit for Conventional or FHA.
Credit requirements
USDA's handbook doesn't set a single minimum credit score. Loans go through GUS, the Guaranteed Underwriting System (USDA's automated underwriting system, or AUS), which weighs your score with the rest of your credit. Most lenders want 640 or higher. If you don't have a credit score, you can document a payment history with rent, utilities, insurance and similar bills, and USDA says that using nontraditional credit isn't a reason to deny a loan.
USDA treats these events as significant derogatory credit when they fall inside the window:
| Event | Window |
|---|---|
| Chapter 7 bankruptcy | 36 months from discharge |
| Foreclosure | 36 months from when title transferred |
| Short sale or deed-in-lieu | 36 months |
| Chapter 13 bankruptcy | 12 months of on-time plan payments, with court or trustee permission |
Inside those windows, a loan needs a credit exception. Non-medical collections that add up to more than $2,000 have to be paid off, put on a documented payment plan, or counted at 5% of the balance as a monthly debt. Medical collections don't have to be paid.
Debt ratios: 29% and 41%
USDA uses two ratios against your repayment income:
- Housing ratio (PITI ratio): the new house payment, meaning principal, interest, property taxes, homeowners insurance, the annual USDA fee and any HOA dues, can be up to 29% of gross monthly income.
- Total debt ratio: the house payment plus all other monthly debts can be up to 41%.
Those are the standards. With a GUS Accept, a purchase loan can go over 29% and 41% without a ratio waiver. With a GUS Refer or a manual underwrite, the lender needs USDA's approval to go higher, and the ceiling is 32% housing and 44% total. That approval requires a 680 or higher score for every borrower and at least one documented compensating factor: three months of house payments in savings after closing, two years with your current employer, a new payment that's no more than $100 or 5% above what you pay now (whichever is less), or an energy-efficient home.
For student loans with a $0 payment, USDA counts 0.5% of the balance. A $20,000 deferred balance counts as $100 a month. Check your own ratios with the DTI calculator.
A $280,000 home with $0 down
A couple buys a $280,000 single-family home in a USDA-eligible part of Florida with nothing down. The 1% guarantee fee is $2,800, financed, so the loan is $282,800 at 5.75% on a 30-year fixed. Taxes run about 0.95% of the price a year and insurance about $283 a month.
| Monthly cost | Amount |
|---|---|
| Principal and interest | $1,650.34 |
| USDA annual fee (0.35%) | $82.48 |
| Property taxes | $221.67 |
| Homeowners insurance | $283.00 |
| Total house payment | $2,237.49 |
To hit the 29% housing standard, the buyers need $7,715.48 a month in repayment income, about $92,586 a year. With $300 in other debts, the 41% total ratio only needs $6,189 a month. On this house, the housing ratio is the one that binds.
Say the buyers earn $7,000 a month. Their housing ratio is 31.96% and their total ratio is 36.25%. With a GUS Accept, that's approvable as is. On a manual underwrite, 31.96% sits just under the 32% ceiling, so it can work with 680 scores and a compensating factor. Either way, the household's adjusted annual income still has to clear the county's limit, which is a separate check.
The annual fee is figured on the average balance for each year, so it shrinks a little every year as you pay the loan down. See how the payment changes with the price on the mortgage payment calculator.
To see these ratios run on the house you're looking at, call AAA Capital Funding at 888-601-8344 and we'll work through them with you.
Fees, closing costs and seller help
USDA's guarantee fee works like mortgage insurance. The upfront fee is 1% of the loan and is almost always financed. The annual fee is 0.35% and is paid monthly inside your payment. Next to FHA's 1.75% upfront and 0.55% annual premium, USDA costs less every month.
The loan can't exceed the appraised value plus the upfront fee, or the price plus eligible closing costs, whichever is lower. When the home appraises above the price, reasonable closing costs can go into the loan within that limit. The seller and other interested parties can contribute up to 6% of the price toward your closing costs, and gift funds from family can cover the rest. USDA doesn't require reserves. Between financing, seller help and gifts, many USDA buyers close with very little cash. The cash to close calculator adds it up.
Property rules
The home has to be your primary residence. USDA's guaranteed program finances single-family homes only, so 2 to 4 unit properties and homes that produce income don't qualify. The house must be modest, decent, safe and sanitary, and it has to pass the appraisal. USDA doesn't set a dollar loan limit; your income and the appraisal set the ceiling.
No co-signers on USDA
USDA doesn't allow non-occupant co-borrowers or co-signers. Only the people who will live in the home can sign. If your numbers come up short, a parent or grandparent can co-sign an FHA or Conventional loan without living there or going on the title, and that's usually the fastest fix. For a buyer with no savings, FHA 100% financing pairs a 96.5% FHA first mortgage with a down payment assistance second that covers the 3.5%, which gets you to $0 down outside USDA areas too.
If USDA is on your list, call AAA Capital Funding at 888-601-8344. We'll check the address and the household income test, put USDA next to FHA and Conventional, and the choice is yours.