USDA Loan Process

USDA loan offers lower mortgage rates and monthly payments. Learn the steps to get approved.

Buying a home is one of the most exciting and stressful things you will do in your lifetime. Not only is it likely the biggest purchase you’ll ever make, but there are also so many steps! There’s no getting around it, the process is complicated. It’s also very emotional. For some, owning a house of their own was just a pipe dream, and seeing it come true brings up all kinds of feelings. That’s the beauty of the rural development loan.

It offers home ownership to those who may otherwise not be able to afford it. The process of purchasing a home through the USDA loan program is not much more involved than obtaining a traditional mortgage. And yes, there are a lot of steps, but a good mortgage broker will guide you through the process one step at a time. Purchasing a home is a journey filled with excitement, anticipation and a touch of anxiety. But the prize is so very worth it.

The USDA Loan Process

A USDA loan is a government program similar to an FHA or VA mortgage loan. It’s run by the Rural Development agency, which lives under the United States Department of Agriculture’s umbrella. The purpose of the USDA loan program is to extend the opportunity of home ownership to moderate-to-low income families by encouraging them to settle down in rural and suburban areas of the country. Under the program, the government offers a monetary guarantee if you are unable to fulfill your promise to pay your mortgage. In other words, this insurance from the USDA allows banks to file a claim if your home enters into foreclosure. Once the request is approved, the lender receives 90% of the difference between what the house sells for in foreclosure and the outstanding principal of the loan. Having this backing reduces the risk of a lender

losing money and increases their willingness to loan money to a broader pool of people.

Breaking Down the Process

Buying a home may sound scary and overwhelming, but it doesn’t have to be! Applying for a USDA loan isn’t much different than applying for any other loan. Before we get into the actual steps of the process, there are a few housekeeping items we recommend taking care of before you start. Very few people wake up one morning and say to themselves, “Hey! I’m going to buy a house today.” We’re sure you’ve done some preliminary work. You’ve taken a hard look at your budget and estimated how much house you can afford, where that house will be located and what amenities it’ll have. What you probably haven’t done is pull your credit reports. That’s always a good idea. Besides finding out what your credit score is, you can check the reports over for any errors that maybe adversely affecting your score. Once that’s done, you can begin the process armed with the knowledge of what you can bring to the table.

With that done, where do you start?

Find a Lender

It’s a good idea to visit two or three different banks or mortgage brokers before you choose one. Besides shopping for the best interest rate, you want to find someone who has a lot of experience with USDA loans. Most banks are approved USDA loan lenders. However, they may only process a few each year. Ask them how familiar they are with this type

of loan, and how many USDA loans they close per year. You also want to choose a loan specialist you feel comfortable with. You will be working together closely over the next couple of months, so it doesn’t help to get the chemistry right. Once you find a lender you feel you can trust, it’s time to move onto Pre-qualification



It may seem like putting the cart before the horse but getting Pre-qualification for a mortgage saves a lot of time and possibly even some heartbreak. When you go through the Pre-qualification process, the lender does an in-depth check of your financial situation. They will check your credit report, verify your income and look at your total monthly debt

payments. Once they are satisfied you meet their requirements, you will get an official letter stating the maximum dollar amount of the mortgage you qualify for. This letter is your golden ticket. Most real estate agents will not work with someone who does not have a Pre-qualification letter. And even if you find one that does, many sellers will not let you view a property without one. Now you know exactly how much house you can afford and can set out to look for your new home.

It’s important to note that a Pre-approval is much different than pre-qualification. You can be pre-qualified for a mortgage with no credit check. You probably get these offers in the mail every week. The only way to be sure that you can secure financing is by going through the actual pre-approval process. And while we’re on that subject, once you get your pre-approval letter, it’s vitally important that you don’t make any significant changes that will change your credit profile. Don’t go out and buy a car, open a new credit card or make any type of large purchase. Your lender will rerun your credit closer to the time you’re ready to close on your house. You don’t want your financing to fall through because you added a $20,000 car loan.

Start Your Search

With conventional financing, you need to come up with that 20% down payment to qualify for the best interest rates. USDA mortgages offer borrowers the opportunity to be eligible for a low-interest rate even when financing 100% of your home's cost. Just a one-half percent difference could add or save thousands of dollars over a 30-year loan term. Also, a fixed interest rate offers security in knowing exactly how much your payment will be every month through the life of the loan.

Submit an Offer

You’ve found it! You have finally found the home that you’d like to settle down in. Great – time to put in a bid with the seller. Your real estate agent will likely have toured the house with you and can offer valuable input on how much you should pay for the home. They know the local market and have access to comparable local properties. When you’ve decided on an amount, your real estate agent will submit an official bid. It’s considered a bid because it’s almost a guarantee others are also putting in their own offers, which will compete with yours. Here’s a tip – if it’s a house that you’ve absolutely fallen in love with, you can add a personal note to the sellers. Tell them what you love about their place, and how much you can see yourself living there. If you can handwrite it, that’s even better. While buying and selling property is a business transaction, there is a lot of emotion wrapped around it. A seller wants to know that the home they’ve taken such good care of will get a similar treatment from its new owners. It doesn’t take long and may pay off in the end.

The Purchase Agreement

Success, your offer was accepted! Once this occurs, the buying and selling agent will draft up an agreement for both parties to sign. In some states, these agreements may only be two pages long, and in others, it could be fifty pages. It’s up to you if you’d like to have an attorney look over the purchase agreement on your behalf. Hiring an attorney as a double check on things isn’t a bad idea, and some states actually require it. Your real estate agent should be able to guide you on your local rules regarding attorneys and give you recommendations on who to choose. Once you sign the agreement, your lender will arrange for a USDA approved appraiser to view the property. They will make sure the home is up to USDA loan standards and that it is listed for fair market value.

The Underwriting Process

After you sign the purchase agreement and have passed the appraisal, your lender goes to work. Time for you to sit back and just answer the questions as they come at you. Often nowadays you’ll be using an online portal where your loan officer will post tasks for you to complete as needed. You may need to furnish tax documents and bank statements. There will be some other documents for you to review and sign. This process often takes a little longer for a USDA loan because there are a few extra steps. Once the bank finishes on their end, it needs to go through the USDA underwriting process as well. If you have a credit score of 640 or above, this goes fairly quickly because you qualify for their automated underwriting system. Once both entities finish working their magic, your lender will set a closing date.

The Closing

The Excitement really begins to build at this point, because you are nearing the end of your homebuying journey. A few days before your closing date, you will receive a document called a Closing Disclosure. Review this disclosure carefully. It will be very similar to one that you received at the beginning, but this one is final. It outlines final closing costs such as lender fees, seller concessions you may have negotiated for, mortgage insurance premiums etc. This document will tell you exactly how much your loan is for, the interest rate and what your monthly payment will be. It will also tell you how much cash you’ll be responsible for at the closing if any. USDA loans do not require any down payment, but you may choose to put some money down or pay closing costs in cash instead of rolling them into the loan. A day or two before closing, you’ll take a final walk through of your new house to make sure everything looks in order. When the actual closing day arrives, you sign on the dotted line (actually, many dotted lines!) and get your keys. Congratulations, you are now a homeowner!


That wasn’t so bad, was it? From start to finish, the USDA loan process can take anywhere from 45 – 60 days. If you are lucky with timing and provide required documents quickly, it’s possible to pare that down to 30 days. But it’s not a process that you want to rush, everything needs to be done in a specific order, correctly and with great attention to

detail. We here at Community First National Bank have processed hundreds of USDA loans and we’d love to walk you through this exciting time in your life. Give us a call today at (855) 923-5041, or visit our website and start your application online.

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National USDA Loans is powered by Community First National Bank, Community First National Bank is Member FDIC. Equal Housing Lender. NMLS ID 449196.

National USDA Loans is not affiliated with any government agencies, including the VA, FHA, USDA or HUD.

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