USDA home loans in California

Zero down without military service

The VA loan is the best-known zero-down mortgage, but it requires military service. The USDA loan is the other one, and anyone can use it if the home and the household income qualify. For buyers who could afford the monthly payment but have not been able to save a down payment, it can be the difference between buying this year and renting for several more.

USDA loans are 30-year fixed-rate mortgages. Because the government guarantees a large share of each loan, rates usually come in at or below conventional pricing, and the monthly guarantee fee is lower than FHA mortgage insurance.

Where USDA loans work in California

“Rural” in USDA terms is broader than farmland. Eligible areas include many small cities and unincorporated communities, many smaller Central Valley towns outside Fresno and Clovis, the Sierra foothills, parts of the Inland Empire’s outer edges and stretches of the Central Coast. Dense cities such as Los Angeles, Oakland or San Jose and their inner suburbs are generally not eligible.

The boundaries are drawn street by street and are updated from time to time, so two homes a mile apart can land on opposite sides of the line. Send us the address or the area you are considering and we will check it against the current USDA map.

Who qualifies

• Household income at or below 115% of the area median for your county and household size, counting every adult who lives in the home.
• Primary residence only, in an eligible area. Single-family homes, and approved condos and townhomes.
• Credit around 640 or higher for automated approval; lower with manual underwriting.
• Steady income for the past two years and a debt-to-income ratio within program limits.
• Not already owning a home that adequately meets your needs nearby.

What a USDA loan costs

There is an upfront guarantee fee of 1% of the loan, usually financed, and an annual fee of 0.35% collected monthly. On a $450,000 loan the annual fee is about $131 a month. Sellers can contribute toward your closing costs, and if the home appraises above the price, some closing costs can be financed too, so a USDA purchase can close with very little cash.

How USDA compares

Next to FHA, USDA saves the 3.5% down payment and charges a lower monthly fee, but it limits where you can buy and how much the household can earn. Next to a conventional loan with 3% down, USDA often wins on payment for buyers with average credit. Mike will price the options side by side so you can see which one actually costs less for you.

Timing

USDA purchases take a little longer than conventional because the file is reviewed by the lender and then by USDA. Plan on 30 to 45 days to close, and let us know your contract dates up front so we can line everything up.

USDA versus buying with a small down payment

Buyers often ask whether it is worth limiting their search to USDA-eligible areas. It depends on what you give up. If the eligible towns near you have the kind of home you want and a commute you can live with, zero down and a low guarantee fee are hard to beat. If the homes you actually want are a few miles inside an ineligible city, a 3% down conventional loan or a 3.5% down FHA loan may serve you better than stretching to fit the map.

We usually run three scenarios for a USDA-eligible buyer: USDA with nothing down, FHA with 3.5% down and conventional with 3% to 5% down. Seeing the payment and cash to close side by side makes the choice clear.

Steps to a USDA purchase

• Confirm income eligibility for your household size and county before you shop.
• Get pre-approved with your income, assets and credit reviewed up front.
• Check each address on the USDA map before you write an offer.
• Allow for the USDA review in your contract timeline, and ask the seller to contribute to closing costs where the market allows.