USDA Home Loan Process: Step by Step

The United States Department of Agriculture helps those who otherwise wouldn’t qualify for home financing to become homeowners. The USDA’s single-family housing guaranteed loan program benefits low- or moderate-income homebuyers in rural areas. The USDA backs these loans to promote economic development in places with smaller populations.

Homeownership helps stabilize the local economy and community because homeowners are more likely to purchase or use home-related goods and services. Additionally, it’s much more probable homeowners will stay within a neighborhood or local community longer, contributing to the continued growth of the local economy and businesses. While traditional home loans require a minimum down payment, a USDA loan does not. If you are not eligible for an FHA loan or a conventional mortgage, you may want to consider a USDA home loan.

USDA Home Loan Steps

steps in USDA home loan process

1. Ensure You Meet the USDA Loan Requirements

The first step of the USDA loan process is to ensure you meet the requirements. Before you complete the USDA loan application process, you will want to consider several things, including location, income, credit score and residency. To be eligible for a USDA construction loan or home loan, you must fulfill specific criteria.

First and foremost, your residency status is essential to how USDA loans work. Potential homeowners must be United States residents, non-citizen nationals or qualified aliens. If you meet the residency criteria, you can begin to consider other requirements to see if you are eligible for a USDA home loan, including the following.


One primary criterion for a USDA loan is that the home is in an eligible rural or suburban area. By design, USDA home loans enrich rural communities and economies, so location is an essential aspect affecting your eligibility. USDA loan property requirements are available on the department’s website. To determine if a property or location qualifies, you will need the home’s address.


In addition to USDA property eligibility, your income plays a pivotal role in determining your qualifications for a USDA loan. USDA loans help families that display economic need. Your adjusted gross income must be 115% or less of the median income in your area. You can find additional information on income eligibility on the USDA’s website.

You will also have to display that you have a stable income and can afford mortgage payments without incident for at least one year based on your savings, current income and total assets. Your debt-to-income ratio is another factor your lender will consider. Your DTI ratio helps lenders understand how many other bills you may need to pay a month in addition to a mortgage. A USDA loan tip is for your DTI to be 50% or lower.

To calculate your DTI ratio, you can divide your monthly recurring debts by your gross monthly income. When calculating monthly expenses, be sure to include automobile loans, student loans, rent, credit card payments or any other form of debt. You do not need to report daily living expenses, such as food, utilities or gas.

Credit Score

Your credit score also factors into your eligibility for a USDA home loan. In general, most mortgage lenders require a credit score of at least 640 or higher. If your credit score is close or even below the minimum suggested score, you may still be eligible for a loan. You will need to discuss your options with your lender to see if you can get approved for a home loan.

2. Find a USDA-Approved Lender

The USDA home loan application process is a valuable tool that can help families become homeowners. Before you can start house hunting, you will need to find a USDA-approved lender. When comparing lenders, you will want to consider various aspects of how they approach lending loans.

  • Loan expertise: One of the first steps to getting a USDA home loan is to find a USDA-approved lender that suits your unique needs. When considering a lender, you may want to ask how much experience they have with USDA loans and how much of their business comes from providing USDA loans. You can also ask if their loan officers have any special training on USDA loans.
  • Interest rates: While online research can provide a general idea of what to expect, it is always best to make sure you have a comprehensive understanding of the current market interest rates. The interest rate you may receive will ultimately hinge on several factors, including your credit score, DTI and more. Interest rates change daily and shift as the market fluctuates. An experienced USDA lender can help you determine when the best time to lock in an interest rate may be.
  • Customer satisfaction: Customer service and satisfaction levels are vital details to consider when selecting a lender. You can get a better sense of previous customers’ experiences by reading online reviews and testimonials. When reading reviews, you will want to look for common themes that may indicate how well the lender operates, such as punctuality, efficiency or even friendliness.
  • Loan process: Asking a USDA loan lender how their process works can help you understand the USDA loan pre-approval process in greater detail. Many USDA-approved lenders have a dedicated team to provide a higher level of customer service to each client. Learning more about their loan process can help you understand if the lender prioritizes a personal connection or efficiency during the loan process.

man and woman looking at tablet on couch

CIS Home Loans

CIS Home Loans is a full-service mortgage bank that can help you turn your dream house into your new home. With over 25 years of experience, we help families reach their homeownership goals. We help potential homeowners understand the various USDA home loan steps and provide tips for USDA rural loan applications. Our team of experts takes pride in our ability to offer industry-leading service for customers without compromising small-town ideals and charm.

3. Get Pre-Qualified for a USDA Loan

If you meet the USDA income requirements and other criteria, you will want to take the first step to receive your mortgage loan, which is getting pre-qualified. Pre-qualification is a more informal process where you provide general information to a mortgage lender with details about your income, assets, debts and expenses. A mortgage professional will then use these details to determine the loan amount you can afford and the potential approval eligibility.

The pre-qualification process helps you determine the price range you may qualify for, helping you understand the price range you can consider for a future home. During the pre-qualification process, there is no credit score analysis. Being pre-qualified also does not ensure you will receive a mortgage loan. Pre-qualification can be a beneficial guide for potential homeowners to comprehend their eligibility better.

4. Find a USDA-Approved Home

Among other responsibilities, the USDA works to help families in rural areas fulfill their dreams by becoming homeowners. You can visit the USDA’s loan eligibility requirements to view an interactive map to see if your home is in an area the USDA defines as rural. Understanding the definition of a rural area can also help you determine if your home or area meets the USDA’s standards.

Defined as a Rural Area

For a home to meet the USDA’s definition of residing in a rural area, it must be outside a city or town, not in an urban area. Additionally, the USDA sets forth specific maximum population thresholds, as defined by the census.

Any area that once met the criteria as rural but lost this designation after the 1990, 2000 or 2010 census may still be eligible as long as the area’s population does not exceed 35,000 and lacks mortgage credit for low- or moderate-income families. Fortunately, many places aside from cities or metropolitan regions fit within these guidelines.

5. Make an Offer to the Seller

If you receive mortgage pre-approval during the USDA guaranteed loan process, you can now make an offer to the seller. While you may not have your mortgage yet, a pre-approval letter can show the seller you are putting in a serious offer and have worked directly with a USDA loan provider to ensure you can afford the house.

In most cases, a pre-approval letter is valid for 60 to 90 days from the issue date. If you do not find a home in that timeframe, you can connect with your home loan lender and receive updated pre-approval paperwork. If the seller accepts your offer, you will then take out a mortgage loan and having the loan appraised.

6. USDA Loan Appraisal

A USDA home loan requires an independent third party to appraise the loan before it can receive approval. Like a conventional loan appraisal, a USDA appraisal helps determine if the home and property value is appropriate for the loan amount. Additionally, the appraisal process can ensure the home’s condition is up to the USDA’s standards.

To comply with USDA standards, a home must be in “basic livable condition.” This term means necessities, such as roofing and heating systems, are fully functional and up to code. The property cannot have any broken or missing windows. The appraiser will also look for signs of insect damage and ensure the septic system is functional and up to USDA guidelines. For a more in-depth report about the home, you can hire a home inspector.

7. USDA Loan Processing, Underwriting and Closing

After you and the seller have reached an agreement and the appraisal has finished, you will be under contract. During this time, your lender and an underwriter will work together to look over your file and ensure you meet all qualification standards. Additionally, your lender and the underwriter will ensure all aspects of your application are in order before finalizing the sale.

How long does it take to process a USDA loan? While the length of time varies from person to person, the USDA underwriting process and underwriting timeframe take approximately 30 to 60 days. What happens after USDA approval? You will receive notice you are clear to close on a house. This notice means you can schedule the official closing and take ownership of your new home.

family holding boxes and moving into home

USDA Loan Tips and Frequently Asked Questions

Applying for a USDA loan can be an ideal way to help you achieve your dream of owning a home while enriching your local community and economy. As you go through the process and learn more about homeownership, you may be looking for USDA loan tips or advice for applying for a mortgage. While applying for a USDA home loan, you may want to consider these frequently asked questions.

Why Would the USDA Deny a Loan?

There are numerous potential reasons the USDA may deny a loan. One of the most common is a possible homeowner does not meet the income requirements or has a higher DTI ratio than recommended. Changes in employment, income level and debt ratio may also play a role in rejecting a loan. Finally, if the house is not USDA-approved, you may not receive a loan.

Can You Build a House With a USDA Loan?

The USDA construction loan process is very similar! By design, USDA construction loans help potential homeowners build homes in rural areas. A USDA construction loan can help finance a plot of land, cover construction costs and serve as a long-term mortgage. These loans may be less common, but are available for eligible borrowers looking to build a home in a suitable rural area.

Why Does USDA Take So Long to Process a USDA Loan?

Borrowers can expect USDA loan processing to take approximately one to two months, depending on various factors and qualifying conditions. The USDA takes this long to approve a loan because it wants to ensure all details of the request are valid. Depending on your unique needs, a USDA loan may process in a shorter or longer timeframe.

Do USDA Loans Have Private Mortgage Insurance?

USDA loans do not have private mortgage insurance, which is typically a feature of conventional mortgage loans. Conventional loans also only have private mortgage insurance if the borrower has less than 20% equity in their home.

Instead, a USDA loan has an annual premium over two times lower than monthly mortgage insurance fees. USDA loans also include a guarantee fee, but this fee is only 1% and is possible to finance into the loan.

man and woman holding loan documents

CIS Home Loans — Your Full-Service Mortgage Bank

CIS Home Loans is a full-service mortgage bank with over 25 years of experience helping families achieve their goals of owning homes. We pride ourselves on fostering lasting relationships with clients and paving the way for their successful futures. Our team of experts prioritizes providing unmatched customer service and educating future homeowners on their mortgage options. With a history of record-breaking agreements, we strive to continue helping families achieve the dream of homeownership and build toward the years ahead. Learn more about USDA home loans and apply online for a home loan.