USDA mortgages now have credit limits
For a long time the USDA loan program was unique in that it did not enforce credit limits. That meant home buyers could, in theory, borrow any amount – as long as they met other USDA mortgage requirements.
But that has changed this year.
USDA now limits the amount you can borrow to buy or refinance. In much of the US, the maximum loan size is $ 285,000, with limits being expanded in the more expensive real estate markets.
This may sound like bad news to USDA borrowers.
In reality, the new limits won’t be a problem for many home buyers as homes in USDA-eligible areas are cheaper anyway.
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USDA credit limits for 2021
As of February 1, 2021, USDA loans have had new credit limits capping the amount home buyers and homeowners can borrow for refinancing.
Generally USDAs new credit limits are set to:
- Up to $ 285,000 in most counties
- Between $ 285,200 to $ 657,800 in medium-sized counties
- Up to $ 657,900 in expensive counties
There are a few exceptions in the ultra high value real estate markets, which we explain below.
The U.S. Department of Agriculture credit limits are based on those set by the U.S. Department of Housing and Urban Development (HUD) FHA loan.
You can now borrow up to 80% of the FHA approved maximum amount in most areas. (Although USDA loans are only available for single-family homes, so there are no higher FHA limits on 2, 3, and 4-unit properties.)
And there are some exceptions to this 80% rule.
For example, if you have an unusually large household, you may be able to borrow more. If you or a loved one has a disability, the credit limit can also be increased so that you can make upgrades available for your home.
What is the maximum USDA loan amount?
In most parts of the US, the maximum USDA credit limit for 2021 is $ 285,000.
The typical high-cost limit for a USDA loan is $ 657,900. This is true in areas such as Los Angeles County and Orange County, CA, Arlington County, VA, and Nantucket County, MD.
In a few countries where houses are exceptionally expensive, credit limits are even higher. These include:
- King County, WA – $ 659,800
- Pierce County, WA – $ 659,800
- Snohomish County, WA – $ 659,800
- Napa County, CA – $ 706,900
- Sonoma County, CA – $ 763,200
You can find the current USDA credit limits for your county Here.
Note that USDA loans are still only available in eligible “rural areas”.
Although higher credit limits are available in countries with large subway areas, you will still need to shop well outside of the city center to be eligible for USDA funding.
USDA home loans are still only available in eligible “rural areas”.
Also, keep in mind that higher house prices and larger loan amounts result in a more expensive mortgage. How can someone afford the $ 657,900 monthly home loan payments?
The good news is that incomes tend to be higher in areas with higher house prices. And USDA Borrower Eligibility is based on the average for the area in which you are buying.
In very high-income areas, the USDA’s income limits allow salaries of up to $ 212,550 – or even $ 280,550 if your household consists of five to eight people. And with that type of income, getting a $ 657,900 mortgage may be feasible.
You can check the current USDA income limits for your area Here.
Is there a maximum USDA loan amount with a decrease of $ 0?
No. All USDA mortgages are available with a zero down payment. It doesn’t depend on the amount borrowed. And you are only limited by the credit limits described above.
You can of course pay a deposit if you wish. And maybe you want to, because it will likely get you a lower mortgage rate and a cheaper monthly mortgage payment.
And there is another way in which you can benefit from a deposit.
For example, suppose your heart is in a house costing $ 300,000. However, the maximum borrowing limit in your area is $ 285,000.
You could fill that $ 15,000 ($ 300,000 – $ 285,000 = $ 15,000) gap by paying a down payment from your savings.
Even in areas with lower USDA credit limits, it is possible to buy a more expensive home if you are able to cover some of the purchase price out of pocket.
Why did USDA introduce credit limits?
You can view this as an attempt to reaffirm the main objective of the USDA’s Rural Development Program – to help low and middle income families buy “humble homes” and encourage home ownership outside of the big city centers.
However, many USDA borrowers will not be affected by the change.
That’s because many USDA borrowers are not interested in big, expensive homes because of their average or low income. And the fact that they are buying in a particular rural area means property prices are likely to be lower than in a city.
Meanwhile, the FHA credit limits on which the U.S. Department of Agriculture relies are quite generous.
For 2021, the FHA limits range from $ 356,362 to $ 822,375, depending on property prices in the area you plan to buy. So the corresponding USDA credit limits go from $ 285,000 to $ 657,900 – because they’re 80% of the FHA limits.
How Much House Can I Afford With USDA?
To know if you are eligible for a USDA mortgage loan and how much home you can afford, there are three things you need to know:
- Place – Is the home you want to buy in a designated rural area? Select the Property Eligibility tab and enter the address in the USDAs Reference tool find out
- Income – Is your income within the local USDA loan income limits? You can use this Income Eligibility Search Tool find out. The bigger your family, the more you can earn
- Credit limits – You can find your local USDA credit limit by looking up your state and state on USDAs Area credit limit card
Of course, not everyone will qualify for the maximum loan amount in their area. You have to clarify other admission requirements.
The amount you can borrow depends on your income, credit rating, and credit Debt-Income Ratio, amongst other things.
However, these search tools will show you whether you are in the game. After that, all you have to do is show a lender that you can easily afford the monthly payments on your mortgage.
How do I qualify for a USDA home loan?
You probably already know the main benefits of a USDA loan:
- No deposit
- Cheap mortgage insurance compared to other loans
- Very low mortgage rates
Overall, these are very attractive mortgages, especially for first-time home buyers. But how do you qualify for one? Well, you mainly need to:
- Buy in an area designated as “rural” by the USDA.
- Buy a single family home that you will use as your main residence
- Do you have a household income that does not exceed the median income in your area by more than 15 percent (but possibly more, depending on the size of your family and the presence of disabilities in your household)?
- Have a credit score of 640 or better. You should also have a clean credit history that has been free of late debt payments, bankruptcy, or foreclosure in recent years
- Have a debt-to-income ratio (DTI) of 41% or less. This means that your housing costs, debt payments, and other inevitable financial obligations cannot exceed 41% of your monthly pre-tax income
If these are problems for you, you may need to choose an FHA loan or other mortgage instead.
But USDA is often best for eligible buyers (unless you qualify for a zero down VA loan). So, if you have the time, it pays to work on improving your creditworthiness and debt to income ratio before you buy.
What are today’s USDA mortgage rates?
USDA mortgage rates are typically lower than similar conventional loans.
This means qualified buyers in USDA Eligible Areas can benefit from lower monthly payments and lower total interest costs.
However, as always, the interest rates vary depending on the person and company.
Make sure you shop with at least 3 USDA approved mortgage lenders to get the best deal on your new home loan.