Applications Closing November 2023


Homeowners are advised to take advantage of a new Mortgage Stimulus Program before it’s gone. This is likely to be the largest benefit program American homeowners have seen.

This Stimulus Program is aimed to help average American citizens and stimulate the economy. Utilizing this new service could get homeowners $271 /mo* or $3,252* per year!

Banks do not want homeowners to know about these programs as they can greatly lower mortgage payments through this simple Government-backed solution.

We recommend checking your eligibility as soon as possible before deadlines are announced or requirements are changed.

To see if you live in an active zip code, just click below.


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* – Based on Median Home Equity of Americans aged 45 to 54 of $70,000 (U.S. Census Bureau)

Table of Contents

what are the cons of a usda loan

Unveiling the Hidden Pitfalls: The Dark Side of USDA Loans You Shouldn’t Ignore

Overview of USDA Loans

USDA Loans – A Comprehensive Guide

USDA loans, also known as rural development loans, are a type of mortgage loan. They’re provided by the United States Department of Agriculture (USDA) and offer low-interest rates and reduced down payment requirements.

Advantages include zero down payment and lower credit score thresholds. Despite their benefits, they have some drawbacks.

Location restriction is one. Only rural area homes are eligible for this loan program. So, if you want to buy a house in an urban area or near a city hub – USDA loans won’t be right for you.

Another con is the longer application processing time. Due to extra scrutiny, approval takes longer. Smaller regional banks and credit unions may also slow the process with fewer resources.

Plan ahead to make the most of USDA loans. Choose rural area homes and reach out to local credit-worthy lenders. You’ll be able to close your dream home quickly with favorable loan terms!

Disadvantages of USDA Loans

To understand the drawbacks of USDA loans, delve into the section on ‘Disadvantages of USDA Loans’ with ‘Limited Eligibility Requirements’, ‘Property Restrictions’, ‘Geographic Limitations’, ‘Funding Fee’, ‘Mortgage Insurance Premium’, ‘Time-Consuming Process’, ‘Income Limitations’, ‘Appraisal Issues’, and ‘Limited Refinancing Options’ as potential issues you may face when using this type of loan.

Limited Eligibility Requirements

The USDA loan program has strict requirements. It might not be the best choice for everyone to buy a new home. To be eligible, one needs a low to moderate-income level and meet certain geographical criteria. The program helps those in rural areas or small towns get a house. Plus, applicants must have good credit and meet debt-to-income ratio guidelines.

Also, some properties may not pass the USDA’s property tests. If a property fails, the borrower won’t be able to get a mortgage under the program.

One idea is to explore other government programs like FHA loans, which have more flexible credit score rules and a lower down payment. Alternatively, save extra cash for the down payment if you don’t want to borrow from your retirement accounts. Then you can look at conventional loans with lower interest rates and easier eligibility than USDA loans.

Property Restrictions

USDA loans have some restrictions. Financing is not available for luxury homes, farms, rental units, or properties that require significant repairs to be safe for occupancy. To qualify, the property must be in a rural area with a population of less than 10,000 people and outside of urban areas. Check the USDA property eligibility map before proceeding with the loan process.

Geographic Limitations

USDA Loan Eligibility Criteria and Constraints

Getting a USDA loan has many perks. But, potential borrowers should know the requirements and limits. USDA loans are made to help people in rural areas buy homes. So, these loans come with geographical restrictions. Borrowers need to make sure they live in an eligible area before applying.

In addition, applicants’ household income must fit the local median income of the area they live in. This limit varies depending on family size and place. The borrower’s credit score is also important for loan approval.

Note, not all lenders may offer USDA loans. Therefore, borrowers need to find the right lender to get this type of loan. Bankrate says, “As of September 2021, there are 3,500 approved lenders for USDA loans.” Funding fee? More like funding flee from USDA loans!

Funding Fee

The One-Time Guarantee Fee is a cost connected to USDA loans. It can be included in the loan and is calculated depending on a percentage of the loan amount.

For different types of USDA Loans, the following breakdown applies:

Type of Loan Guarantee Fee
Purchase Loan 1%
Refinance Loan 1%
Streamline Refinance Loan 0.35%

Be aware that this fee may change due to certain factors such as the loan’s term and if it’s for first-time homebuyers or not.

USDA Loans also have monthly mortgage insurance premiums. These are needed throughout the life of the loan until the principal balance reaches 78% or less of the home’s value when it was taken out. This increases the overall cost of borrowing.

To lower costs with USDA loans, it’s best to pay attention to your credit score as well as compare interest rates. It’s also a good idea to make a higher down payment to reduce monthly payments and debt obligations.

By keeping these points in mind, borrowers can increase their chances of getting a good USDA loan while minimizing costs. Mortgage insurance premiums protect the lender from the risk of not getting their money back on your USDA loan – it’s like paying for insurance on someone else’s car.

Mortgage Insurance Premium

USDA loans come with a Mortgage Insurance Premium (MIP) requirement. Lenders charge this fee to protect themselves in case a borrower defaults. This can add up over time, so borrowers need to factor it into their monthly budget.

Unlike conventional loans, the MIP for USDA loans is non-cancellable.

Despite these limitations, many borrowers may still find USDA loans attractive. This is especially true for those who don’t qualify for conventional loans due to credit or income restrictions.

Before making a decision, those considering a USDA loan should be aware of all its aspects. Each borrower’s experience will vary depending on their financial situation.

Time-Consuming Process

Gettin’ a USDA loan can mean a long journey. Collecting papers, credit checks & property appraisals must all happen. Wait times can be a drag and cause frustration.

Plus, the rural nature of USDA loans can slow down appraisals due to a lack of resources and staff. Delays in approvals are likely.

It’s important to know, this loan option has great financial benefits, yet those seekin’ quick and simple borrowin’ may not benefit.

Pro Tip: Gather all docs before applying to speed up the process.

Income Limitations

USDA loans come with income restrictions. It depends on the area and household size. Those with higher incomes may not qualify. This is because USDA loans assist those in need of housing and help rural development.

For moderate to high incomes, it can be difficult to purchase a home in rural areas due to a lack of funds for down payments or closing costs.

In addition, there are strict guidelines for property eligibility, occupancy requirements, and debt-to-income ratios. To improve your chances of qualifying for a USDA loan, consider applying as a low-income applicant or reducing debts. It’s best to delay application until all eligibility criteria are met, to save time and disappointment.

Appraisal Issues

Assessing USDA loans can be tough for eligible borrowers. Property value is critical for deciding loan amount and interest rate. Appraisers who lack knowledge of rural properties may undervalue them, and ones who overestimate can cause higher interest rates and difficulties paying back the loan.

Lenders are extra careful with appraisals to protect their investments, as USDA loans provide 100% financing. Appraisal problems can delay closing and hinder homeownership goals. 84% of first-time homebuyers value homeownership for stability and financial security.

For a successful USDA loan application, it’s important to find appraisers knowledgeable about rural land. Refinancing USDA loans? Good luck! It’s like attempting an exquisite meal with instant ramen noodles.

Limited Refinancing Options

USDA loans are not very flexible when it comes to refinancing. If your finances change, you may not be able to adjust your loan. Consider getting a conventional loan for more options. It has different rates and terms, plus lower fees than USDA loans.

Not to mention, USDA loans require upfront fees and monthly mortgage insurance. So, you may end up paying more in the long run. Still, they are an appealing option for those who meet the eligibility criteria. For example, someone I know purchased a home with a USDA loan, having little cash reserves. They were delighted to be able to do this without a high down payment and finance all costs in the loan amount.

Bottom line: if you’re relying on a USDA loan, just know that there can be costly consequences.


Pondering USDA loans? Here are a few drawbacks to consider.

  • Eligibility requirements might be strict,
  • processing time can be lengthy,
  • and fees and rates may be higher.

So, weigh your options!

Personal financial status should be evaluated. Compare interest rates with other government-backed loans, e.g. FHA or VA. Make a wise decision to avoid being stuck in a long-term commitment with potential stress.

Curious about USDA loans? Research and comprehend the pros and cons before making a decision. Don’t miss out on weighing your options – weigh all available choices first.

Frequently Asked Questions

1. What are the credit score requirements for a USDA loan?

Ans: To qualify for a USDA loan, the credit score requirements may vary depending on the lender, but typically, lenders look for a minimum credit score of 640 or higher.

2. Can you use a USDA loan for a second home or vacation home?

Ans: No, USDA loans are only available for primary residences in eligible rural areas.

3. Are there income limits for USDA loans?

Ans: Yes, USDA loans have income limits based on the borrower’s location, family size, and other factors. These limits vary by county and state and are generally lower than those for traditional home loans.

4. What are the disadvantages of a USDA loan?

Ans: Some of the cons of a USDA loan include limited availability in certain areas, lengthy processing times, and potential funding fee costs. Also, the property must meet specific requirements and be located in a designated rural area.

5. Can you refinance a USDA loan?

Ans: Yes, you can refinance a USDA loan with a USDA Streamline Refinance or a traditional refinance loan. However, you must meet certain requirements and guidelines to be eligible for a refinance.

6. How do I know if a property is eligible for a USDA loan?

Ans: You can check the USDA eligibility website to determine if a property is located in an eligible rural area and meets the specific requirements for a USDA loan.

Jeremy Toronto

Jeremy Toronto

Jeremy has working in the mortgage industry since 2013. Really loves to research and give advice to new homeowers when it comes to one of your biggest purchases (your home!) As a property investor and having took the test NMLS has a unique insight into refinancing and getting a mortgage for new homeowners. When not working I like to hike, fish and collect insects (I know wierd right?).

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