Using a USDA home loan in Arizona

USDA Home Loans for Arizona Homebuyers

What is an Arizona USDA Home Loan?

When most people hear the word “USDA”, the immediate thought of USDA beef or produce comes to mind. So it comes as a surprise to many homebuyers when I mention using a USDA mortgage to purchase their dream home. So what is a USDA home loan? As you probably already know, USDA stands for the United States Department of Agriculture. Besides inspecting beef and produce, they also have loans available to farmers and homebuyers. Yes, that is right – to homebuyers. Called the USDA Rural Development loan, this mortgage is a Government insured mortgage that is administered through the United States Department of Agriculture. Its sole purpose is to help provide low-cost insured mortgages to those living in small communities and rural areas as well as many outlying metropolitan areas, such as Tucson and Phoenix, Arizona.

With no money down option, a USDA home loan could be a great choice for homebuyers that are ok with purchasing a home in a rural or non-metropolitan area, such as Sahurita or Green Valley, Arizona just outside of Tucson. Besides having a zero-down payment option, USDA Rural Mortgage Loans also have low closing costs and low monthly mortgage insurance.

Are there different kinds of USDA home loans offered in Arizona?

There are basically two general types of USDA mortgages offered in Arizona – a USDA Direct Mortgage and a USDA Guaranteed Mortgage. What are the difference between the two?

  • With it’s no money down payment option and higher income limits, a USDA guaranteed mortgage is by far the most popular choice. Borrowers can have income as much as 115% of the median income for the household for that particular area. Click to see income chart: Single Family Housing Income Eligibility
  • A USDA direct mortgage, on the other hand, is used far less than the guaranteed. Direct mortgages are only available to the those borrowers that a household income that is considered low or very low income. Borrowers that have a household income that is 50% below the median income for that area are considered very low income. Borrowers that fall between the 50-80% of the area’s median income are considered low income.
  • What is the eligibility requirements for a USDA Mortgage?

    To be eligible for today’s USDA loan qualifications, your housing costs  each month (mortgage principal and interest, property taxes, and insurance) have to remain below a specified percentage of your gross monthly income (29% ratio). Your credit background is also considered. A 620 FICO credit score or higher is required to obtain USDA mortgage approval through most of today’s lenders. You also need enough income to pay housing costs plus all other monthly debt that you have (41% ratio). Debt Ratios can be exceeded a little bit with compensating factors for the borrower. USDA applicants can have an income as high as 115% of the median area income.

    Is a USDA Mortgage possible after bankruptcy?

    One of the most popular questions that we get asked on USDA loans is: “Can I/we buy a home with a USDA loan after a bankruptcy”? The answer may surprise a few, but yes. Yes you can buy after a bankruptcy. If you had a Chapter 7 bankruptcy, then the wait period is a minimum of 3 years from the discharged date before you can apply for a USDA loan. If you filed a Chapter 13 bankruptcy and have made all the payments on time for a minimum period of at least one year, then you might be eligible to apply for a USDA loan with the court’s permission. Either bankruptcy will also require that good credit has been re-established with no late payments.

    How much can be borrowed?

    USDA mortgage guidelines set limits by:

    Loan amount: While there isn’t a maximum loan amount set for a USDA mortgage loan, your debt-to-income ratios will determine how much you can afford (29/41 ratios). Also, total household income must be within USDA allowed maximum limits for your area. These limits can be found at here.

    Maximum financing: The maximum USDA Rural Development Mortgage amount is 102% of the homes appraised value (100% plus 2% USDA guarantee fee).

    What about the down payment and closing costs?

    One of the unique features of a USDA Mortgage is that has a no money down option or 100% financing, which is really unheard of these days – with the exception of a VA loan. Another great feature that a lot of homebuyers are unaware of is that you can have the closing costs rolled into the loan (only if the appraised value will allow it).

    What kind of properties are allowed with a USDA Mortgages?

    The USDA home loan can only be used as a principal residence, so no investment homes! It can be used to purchase a single family home, condo, planned unit development or PUD, as well as manufactured homes. This is so long as the property is in the USDA eligible area.
    ** Because of the complexity with financing homes with swimming pools under the USDA home loan guidelines, we strongly recommend that you avoid submitting offers on homes with swimming pools. USDA has historically declined financing almost 100% of these types of properties.

    SOME Eligible USDA Areas in Arizona:

    Metro: Counties:
    Buckeye, AZ Cochise County, AZ
    Anthem, AZ Coconino County, AZ
    Sahuarita, AZ Maricopa County, AZ
    Casa Grande, AZ Mohave County, AZ
    Sierra Vista, AZ Pima County, AZ
    Tucson, AZ Pinal County, AZ
    Yuma City, AZ Santa Cruz
    Green Valley, AZ Yavapai County, AZ
    Nogales, AZ Yuma County, AZ

    You can click here to determine if the property your thinking of purchasing can be financed with this program.

    USDA Mortgage versus Conventional Mortgage

    USDA Mortgages are more flexible on credit requirements

    So you had a little bit of a hiccup with your credit a few years ago and your credit scores are not 800+. Since USDA mortgage loans are not totally credit score driven, borrowers oftentimes can get approved with a credit score as low as 620 FICO score.

    Do USDA Mortgage Loans have mortgage insurance

    Yes, USDA loans do have mortgage insurance. I know.. I know. But compared to an FHA or conventional loan, the mortgage insurance is considered very low. Are the mortgage rates competitive? Another great benefit of using a USDA loan is that the rates are usually very competitive with conforming 30-Year fixed rate mortgages.

    Do USDA Mortgages require a down payment?

    One of the great benefits of purchasing a home with a USDA Mortgage is that they have a no down payment option. This is great for homebuyers that have just a little bit saved up.

    If you are thinking of purchasing a home here in Arizona and would like to know more about the USDA home loan, then please give us a call. We would love to sit down and explain the program to you, as well as other mortgage options that might be available. More on USDA home loans: USDA Loans in Arizona

    Give Us A Call Today!

    Tucson/S. Arizona: (520)303-5620 Phoenix/N. Arizona: (480)648-1733


    Joseph Small and the team at Guild Mortgage Co. helps Tucson and Phoenix Homebuyers with all their USDA home mortgage loan needs. Give them a call today! Also proudly serving Sierra Vista, Green Valley, Sahuarita and Nogales, Arizona.