USDA mortgages now have loan limits
For a long time, the USDA loan program was unique in that it didn’t enforce loan limits. That meant home buyers could theoretically borrow any amount — so long as they met other USDA mortgage requirements.
But that changed this year.
USDA now caps the amount you can borrow to buy or refinance. Loan sizes max out at $285,000 in much of the U.S., with expanded limits in higher-cost real estate markets.
This might sound like bad news for USDA borrowers.
But in reality, the new limits won’t be a problem for many home buyers because houses in USDA-eligible areas tend to be more affordable, anyway.
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USDA loan limits for 2021
Since February 1, 2021, USDA loans have new loan limits, which cap the amount home buyers and refinancing homeowners can borrow.
Generally, USDA’s new loan limits are set at:
- Up to $285,000 in most counties
- Between $285,200-$657,800 in mid-range counties
- Up to $657,900 in high-cost counties
There are a few exceptions in ultra-high-value real estate markets, which we explain below.
The U.S. Department of Agriculture’s loan limits are based on those set by the U.S. Department of Housing and Urban Development (HUD) for FHA loans.
You can now borrow up to 80% of the maximum allowed by the FHA in most areas. (Although USDA loans are only available for single-family homes. So higher FHA limits for 2-,3-, and 4-unit properties don’t apply.)
And there are some exceptions to that 80% rule.
For example, if you have an unusually large household, you may be able to borrow more. Similarly, if you or one of your dependants have a disability, the loan limit might be raised to allow you to make accessible home upgrades.
What’s the maximum USDA loan amount?
In most parts of the U.S., the maximum USDA loan limit for 2021 is $285,000.
The typical high-cost limit for a USDA loan is $657,900. This applies in areas like Los Angeles County and Orange County, CA, Arlington County, VA, and Nantucket County, MD.
Even higher loan limits apply in a select few counties where homes are exceptionally expensive. These include:
- King County, WA — $659,800
- Pierce County, WA — $659,800
- Snohomish County, WA — $659,800
- Napa County, CA — $706,900
- Sonoma County, CA — $763,200
You can find current USDA loan limits for your county here.
Keep in mind, USDA loans are still only available in eligible ‘rural areas.’
So even though higher loan limits are available in counties with large metro areas, you’d still need to be buying well outside the city center in order to be eligible for USDA financing.
USDA home loans are still only available in eligible ‘rural areas.’
Also, remember that higher home prices and bigger loan amounts result in a more expensive mortgage. How can anyone possibly afford the monthly payments on a $657,900 home loan?
Well, the good news is that incomes tend to be higher in areas with higher home prices. And USDA borrowers’ income eligibility is based on the average for the area where they’re buying.
In very-high-income areas, USDA’s income limits allow salaries as high as $212,550 — or even $280,550, if your household comprises five to eight people. And with that sort of income, affording a $657,900 mortgage can be doable.
You can check current USDA income limits for your area here.
Is there a maximum USDA loan amount with $0 down?
No. All USDA mortgages are available with a zero down payment. That doesn’t depend on the amount borrowed. And you’re only constrained by the loan limits described above.
Of course, you can make a down payment if you choose. And you may want to, because that will probably earn you a lower mortgage rate and a more affordable monthly mortgage payment.
And there’s another way in which a down payment can benefit you.
Suppose your heart’s set on a home costing $300,000. But the most you can borrow in your area is $285,000.
You could bridge that $15,000 gap ($300,000-$285,000=$15,000) by making a down payment out of your savings.
So even in areas with lower USDA loan limits, it’s possible to buy a more expensive home if you’re able to cover part f the purchase price out of pocket.
Why did USDA implement loan limits?
You can see this as an attempt to reinforce the main goal of the USDA Rural Development program — which is to help low- and moderate-income families buy ‘modest homes,’ and encourage homeownership outside big city centers.
However, many USDA borrowers won’t be affected by the change.
That’s because average or low incomes mean many USDA borrowers are not interested in large, expensive homes. And the fact that they’re buying in a designated rural area means home prices are likely to be lower than in a city.
Meanwhile, the FHA loan limits on which the U.S. Department of Agriculture is basing its own are quite generous.
For 2021, FHA limits range from $356,362–$822,375, depending on property prices in the area in which you want to buy. So the equivalent USDA loan limits go from $285,000 to $657,900 — because they’re 80% of the FHA’s limits.
How much house can I afford with USDA?
To know whether you are eligible for a USDA mortgage loan — and how much house you can afford — you need to know three things:
- Location — Is the home you want to buy located in a designated rural area? Select the “Property Eligibility” tab and enter the address in the USDA’s lookup tool to find out
- Income — Is yours within local USDA loan income limits? You can use this income eligibility lookup tool to find out. The bigger your family, the more you can earn
- Loan limits — You can find your local USDA loan limit by looking up your state and county on USDA’s area loan limits map
Of course, not everyone will qualify for the maximum loan amount in their area. You still have to clear other eligibility requirements.
The amount you can borrow depends on your income, credit score, and debt-to-income ratio, among other things.
But those lookup tools will tell you whether you’re in the game. And, after that, you just need to show a lender that you can comfortably afford the monthly payments on your mortgage.
How do I qualify for a USDA home loan?
You probably already know the main advantages of a USDA loan:
- Zero down payment
- Cheap mortgage insurance compared to other loans
- Uber-low mortgage rates
Overall, these are very attractive mortgages, especially for first-time home buyers. But how do you qualify for one? Well, you mainly need to:
- Buy in an area designated by the USDA as ‘rural’
- Buy a single-family home you’ll use as your primary residence
- Have a household income that does not exceed the median income for your area by more than 15 percent (but maybe more depending on the size of your family and the presence of disabilities in your household)
- Have a credit score of 640 or better. You should also have a clean credit history, free of late debt payments, bankruptcy, or foreclosure in recent years
- Have a debt-to-income (DTI) ratio of 41% or lower. That means your housing costs, debt payments, and other inescapable financial obligations can’t exceed 41% of your monthly income before tax
If those are issues for you, you might need to choose an FHA loan or other mortgage instead.
But USDA is often the best for eligible buyers (unless you qualify for a zero-down VA loan). So it’s worth working to improve your credit score and debt-to-income ratio before buying if you have time.
What are today’s USDA mortgage rates?
USDA mortgage rates are typically lower than those for similar conventional loans.
That means qualifying buyers in USDA-eligible areas could benefit from lower monthly payments and lower total interest costs.
However, as always, interest rates vary by person and by company.
Make sure to shop with at least 3 USDA-approved mortgage lenders to get the best deal on your new home loan.