The USDA home loan is a zero-down payment mortgage that makes it easier to buy a home in rural and suburban neighborhoods across the country. Over 97% of the United States land mass is eligible for the USDA loan, representing 109 million people.

Zero down payment, low rates, and lenient credit score minimums make USDA home loans the program of choice for many home buyers.

USDA borrowers loans retain over $10,000 in cash in the first year of homeownership

The USDA home loan requires zero down payment. Home buyers only need enough cash for any closing costs for which the seller does not pay. FHA loans require cash for closing costs plus a sizeable 3.5% down payment. Compared to FHA buyers, USDA borrowers retain $8,750 in cash when buying a $250,000 home.

But that’s not where the savings stop. USDA monthly costs are much lower than those of FHA:

• USDA buyers pay a fee of 0.50% of the loan amount per year.
• FHA buyers pay a fee of 1.35% of the loan amount per year.

On a $250,000 loan, the USDA buyer saves about $2,000 in fees during the first year. All told, the USDA buyer holds onto $10,000 in cash throughout year one of homeownership, perhaps the most expensive year the homeowner will see. It is a time when cash reserves are important. Home buyers purchase furniture and upgrade the home to their liking, while making sure they have enough for their monthly home payment. The USDA loan helps new homeowners succeed in the critical first year of owning.

The cost savings alone are reason enough for buyers to choose a USDA loan, if they are looking for homes inside the USDA eligibility map. Lenient credit requirements and low rates are icing on the cake for prospective homeowners.

Changes to USDA eligible maps in October 1, 2015

The USDA loan, also called the Rural Development or RD loan, is available to home buyers looking for a home within a “rural” area as defined by the United States Department of Agriculture (USDA). The USDA defines a rural area as “any city, town or unincorporated area with a population of 20,000 or less” and that is not adjacent to a major city.

But the eligibility map includes many suburban areas that exceed this limit. The reason: the eligibility map is based on the U.S. census taken in the year 2000.

Housing in cities became much more expensive during the 2000s. In turn, populations moved outward, filling up adjacent “bedroom communities.” Small towns and suburbs became cities in their own rite. While populations changed, USDA eligibility maps didn’t. When the 15-year delay comes to an end there will be significant USDA map changes in many areas of the country.

The changes will take effect October 1, 2015. Map updates were set for 2014, but were delayed one year.

It’s estimated that 8% of eligible home buyers will no longer live in USDA-qualifying areas. About 10,000 square miles will be removed from the eligibility map, representing 9 million potential USDA buyers. Home loan applicants should select a home and apply for the USDA loan prior to the fall of 2015. Many who need a zero-down loan may find that their area is no longer eligible for the USDA loan.

USDA home buyers still have time to apply

The USDA loan process is a little different than that of conventional or FHA loans. Loan files must go through two approval processes before they are approved:

• The USDA loan application must be approved by the lender.
• The USDA loan application must be confirmed by the respective USDA state office.

The two-step process can take 60 days or more. Lenders and USDA state offices are experiencing high USDA application volumes recently. The USDA loan has been the best-kept secret in home buying, but its popularity is increasing by the day.

The good news is that USDA buyers still have time to apply. USDA state offices will honor current eligible areas if they receive a complete application by end of business on September 30, 2015. The lender must fully approve the loan file and submit it to their respective USDA state office. It’s a good idea for USDA buyers to find a home and apply for the loan by early summer 2015.

Apply for a USDA home loan soon

Once USDA updates its map, up to 9 million people will no longer live in USDA-eligible areas. These home buyers will have to apply for the more expensive FHA loan, or search for a home further away from their desired location.

The USDA loan is one of the best values in today’s mortgage marketplace. More importantly, it allows people who can’t qualify for other loan types to get into their own home.