USDA Loans in Maine A Complete Guide

If you’re searching for a home loan that offers a low down payment option, USDA loans in Maine could be the mortgage you’ve been looking for.

While homeowners have various financing options, few home loans offer Mainers 100% financing with interest rates this low.

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Become a homeowner in Maine with zero down

USDA loans in Maine help borrowers buy a home with no money down, potentially saving them thousands of dollars in upfront costs.

Let’s look at an example.

FHA home loans require a down payment of at least 3.5% for qualified borrowers. That means if you want to buy a home for $200,000 using an FHA mortgage, you’ll need to have $7,000 in cash to pay at closing—in addition to any closing costs.

Because USDA loans in Maine have a $0 minimum down payment, that’s $7,000 you don’t need to save. You’ll still need to pay closing costs, but USDA loans give borrowers a few options to lessen this expense, including:

• Rolling closing costs for eligible homes into the total mortgage amount
• Financial help from family members
• Asking the seller to contribute toward upfront costs

What is a USDA loan?

USDA home loans are residential mortgages backed by the Department of Agriculture.

They’re available to eligible borrowers buying homes in suburban or rural areas of a state. USDA loan requirements are aimed at helping low- to moderate-income families purchase safe homes in less densely populated areas.

USDA loans can go by a few different names, including Rural Development or RD loans, or even “Section 502” loans—named for the USDA rulebook section that describes the home loan program.

Despite the “rural” element, USDA loans are only available for single-family, owner-occupied homes; you can’t use USDA loans to purchase farms, investment properties, or vacation homes.

USDA-eligible areas in Maine

USDA loans in Maine can be used in areas that meet the USDA’s definition of “rural.” Because the USDA considers most areas with 35,000 residents or less as eligible for USDA loans, most of Maine qualifies.

You can check the USDA’s eligibility map to see if your area qualifies.

Let’s look at a few USDA-eligible areas in Maine.

Presque Isle, Maine

Located in beautiful northern Maine, Presque Isle is a vibrant community of just under 9,000. It’s also the commercial center in Aroostook County. Presque Isle attracts thousands of tourists annually, who enjoy its small-town friendliness and big-city amenities.

In addition to a strong, diverse economy, northern Aroostook County’s more than 3 million acres of unspoiled, natural wilderness is a beacon to outdoor enthusiasts across the country, contributing to a thriving, year-round tourism and hospitality industry.

Presque Isle median home price: $176,000

Bangor, Maine

With a population of just over 31K and a robust downtown, including great eateries, libraries, and shops, parts of Bangor, Maine, are eligible for USDA home loans. Bangor is home to the Maine Discovery Museum, a hands-on nature, science, and art museum aimed at kids.

The University of Maine’s Museum of Art features modern and contemporary artworks, while Bangor City Forest offers countless trails through beaver- and deer-inhabited woods. And horror fans should keep an eye out for authors Stephen King and his wife Tabitha, both born-and-bred Mainers, who still call Bangor home. Minutes outside Bangor, you’ll find USDA eligibility in Brewer, Hermon, and Glenburn.

Bangor median home price: $226,000

Portland, Maine

With a population of almost 70,000, Portland is Maine’s largest city that still holds on to its quintessential New England charm. A scenic working waterfront with fishing wharves, cobblestone streets, local shops, award-winning restaurant galleries, parks, live entertainment venues, and more makes Portland a destination of choice for new graduates, young families, and retirees.

Portland builds on business and tourism industries to deliver big-city comforts without big-city headaches. Find eligible properties on the outskirts of Portland, and in Falmouth, South Windham, and Scarborough.

Portland median home price: $570,000, but more affordable homes in the area.

Lewiston, Maine

Maine’s second-largest city is home to almost 40,000 people and has many neighboring areas eligible for USDA loans. Lewiston’s vibrant cultural and business community offers an affordable cost of living and a thriving economy that includes manufacturing, financial, technology, telecommunications, and world-class healthcare facilities.

Home to the renowned University of Southern Maine (Auburn College), Lewiston is recognized as a leader in fine arts and cultural offerings. Find eligible homes in Lisbon, Sabattus, and Greene.

Lewiston median home price: $258,900

Ogunquit, Maine

Situated on Maine’s stunning southern coast, Ogunquit attracts visitors from every corner of the country year-round. Its sandy beaches and iconic lighthouses provide the backdrop for the town’s bustling arts and culture scene. Ogunquit’s strong tourism industry is just one aspect of the thriving small town. With restaurants, clubs, shops, and schools, Ogunquit is the little town attracting national attention—and new residents—every year.

Ogunquit median home price: $762,500 with more affordable homes available in outlying locations.

USDA loan income limits for Maine

The majority of Maine falls under the USDA income limit for 1-4 member households of $103,500. Most households in Maine with between 5-8 members have a $136,600 income threshold. You can find all Maine USDA income limits here. 

USDA loans in Maine count your entire household income—not just the income of those on the actual loan application—when determining eligibility.

To help borrowers meet that eligibility, the USDA allows for certain deductions such as childcare, medical expenses, dependents, costs associated with elder households, and more. To see which deductions your family can qualify for, check the USDA’s income tool.

Learn more about USDA income limits.

To qualify for a USDA loan, borrowers need to prove they have a consistent income stream. This typically involves showing evidence of steady earnings over time. Acceptable forms of income may include:

• Employment Income: Pay stubs or a letter from an employer can verify regular wages.
• Retirement Benefits: Documentation such as bank statements that display consistent deposits may be required.
• Other Verifiable Income: This could encompass rental income, investment dividends, or other reliable financial resources.

Lenders want to see that these income sources are reliable and sufficient to cover monthly mortgage payments and other expenses. This stability helps assure lenders of a borrower’s ability to repay the loan over time.

USDA loan down payment and closing costs

USDA loans Maine require a $0 down payment. In other words, USDA loans allow borrowers to finance 100% of their home’s purchase price.

Borrowers do need to cover closing costs, however, which typically equal between 3-5% of the home’s purchase price. Closing costs include loan origination fees, lawyer’s fees, and more.

The USDA does permit borrowers to use other sources, such as monetary gifts from family, to pay closing costs.

Learn more about USDA Loan Down Payment and Closing Costs.

Maine closing cost assistance grants and programs

The Maine State Housing Authority offers first-time homebuyers funds towards closing costs and down payment assistance through their Advantage program.

Advantage can provide up to $5,000 to eligible buyers who take approved homebuyer education.

USDA loan limits for Maine

USDA loans do not have loan limits, but they do use local income limits to indirectly cap the amount a homeowner can borrow.

For example, if you live in Bangor, your household income would be limited to $103,500. That works out to a monthly gross income of $8,625 and an estimated home price of $325,000. You can see how other factors, like debt-to-income ratios, can impact how much you can borrow.

Mortgage rates, payments, and fees are for example purposes only. Your costs will vary.

USDA debt-to-income ratio

USDA loans in Maine use standard 29/41 debt-to-income (DTI) ratios. This means 29% of a borrower’s gross income can go toward housing (mortgage principal and interest, plus taxes, insurance, and any homeowner fees).

The broader DTI—all money paid on all debts, including housing payments—can be up to 41%.

But USDA lenders in Maine can approve higher DTIs for borrowers with compensating factors like good credit rating.

Check with a USDA lender to see if you qualify.

USDA home loan mortgage rates in Maine

Because the US government “guarantees,” or backs, USDA loans in Maine, there’s less lender risk.

If a borrower is unable to repay the home loan in full, the government steps in and repays the lender up to 90% of the original loan amount. Less lender risk means lower USDA home loan interest rates for borrowers.

USDA property condition guidelines

Because they are focused on helping low and moderate-income households buy “adequate, modest, decent, safe and sanitary” homes, USDA loans in Maine require all properties to meet a minimum property condition standard: a home must be in a livable condition at closing.

A home needing minor or cosmetic repairs wouldn’t have difficulty qualifying. In contrast, a home requiring structural repairs, like fixing a crack in the foundation or installing a new roof, would need to have these repairs completed before closing to qualify.

USDA uses property standard guidelines similar to those set out by the FHA.

Why is a Property Appraisal Necessary for a USDA Loan?

When you’re applying for a USDA loan, the property appraisal plays a crucial role for several reasons. Here’s why it’s an essential step in the process:

• Ensuring Fair Market Value: An appraisal confirms that the property’s price aligns with its market value. This helps protect both the lender and the borrower from overpaying.
• Meeting USDA Standards: The USDA has specific requirements that the property must meet to qualify for financing. An appraisal checks that these standards, including safety and livability criteria, are met.
• Determining Loan Amount: The appraisal outcome can influence the total amount you can borrow. The loan is often based on the lesser of the appraised value or the purchase price.
• Risk Management for Lenders: Lenders use the appraisal as a tool to assess risk, ensuring the property is a sound investment. It verifies that, should the loan default, they can recoup losses by selling the property at a fair market value.

In summary, a property appraisal is indispensable in securing a USDA loan, as it confirms the home’s value, ensures compliance with required standards, and supports the financial interests of all parties involved.

Pros and cons of a Maine USDA loan

Is a USDA loan right for you? Let’s look at the main USDA pros and cons.

Advantages of USDA loans in Maine include:

• Zero minimum down payment
• Competitive interest rates, often lower than FHA loans
• Lower mortgage insurance costs compared to FHA loans
• Homes in almost all areas of Maine, including parts of Bangor and Portland

Disadvantages of USDA loans include

• Income limits that include all members of the household over 18—not just those on the loan application
• Longer loan processing timeframes

USDA loan vs. FHA vs. Conventional

FHA loan: Backed by the Federal Housing Administration; offers 3.5% down payment; requires insurance for the lifetime of the loan

VA loan: restricted to military servicemembers, veterans, and eligible surviving spouses; offers zero down payment; backed by the Department of Veterans Affairs.

Conventional loan: Offers 3% down payment; requires good to excellent credit.

USDA loan credit score minimum

The USDA doesn’t specify a minimum credit score. Individual USDA lenders establish credit requirements. Most local USDA lenders in Maine, however, require scores in the 620-640 range, although some will accept scores below 600.

How Time Since Bankruptcy or Foreclosure Influences USDA Loan Eligibility

Navigating the path to securing a USDA loan after experiencing financial setbacks like bankruptcy or foreclosure involves understanding the specific waiting periods set by lenders. Here’s what you need to know:

Waiting Periods for USDA Loans

• Bankruptcy: Typically, a borrower must wait a minimum of three years after a bankruptcy discharge to become eligible for a USDA loan. This period is crucial for re-establishing credit and demonstrating financial stability.
• Foreclosure: Similarly, the waiting period following a foreclosure is generally three years. This timeframe allows lenders to assess the individual’s ability to manage finances responsibly post-foreclosure.

Why These Waiting Periods Matter

These waiting periods are designed to provide borrowers with enough time to rebuild their financial profiles. During these years, it’s essential to maintain a clean credit history, manage debts wisely, and establish a steady income stream. Doing so not only enhances your chances of approval once the waiting period is over but also positions you for more favorable loan terms.

Additional Considerations

• Credit Score Improvement: Use this time to focus on improving your credit score. A higher score not only bolsters your loan application but can also secure better interest rates.
• Consistent Financial Management: Demonstrating consistent, responsible financial behavior is crucial. Lenders need assurance that past issues have been resolved and are not indicative of future risks.

By understanding and adhering to these guidelines, prospective borrowers can strategically plan their financial recovery and increase their chances of obtaining a USDA loan once eligible.

USDA mortgage insurance

These loans require borrowers to pay two different mortgage insurance fees: Annual and Guarantee fee.

Guarantee fee

Borrowers pay 1% of their total loan amount at closing. For example, borrowers would pay a one-time fee of $3,000 on a $300,000 mortgage. Many borrowers opt to roll the USDA Guarantee Fee into the loan, reducing out-of-pocket expenses.

Annual fee

This annual fee is equal to 0.35% of the annual outstanding mortgage balance. The annual fee is divided into 12 equal amounts and added to your regular monthly mortgage payment.

It works out to approximately $29 monthly for every $100,000 borrowed. For example, borrowers would pay an additional $87 as part of their monthly mortgage payment on a $300,000 mortgage.

The Guarantee and Annual fees contribute toward the sustainability of the USDA loan program nationwide.

How are the USDA Guaranteed Loan and Direct Loan different?

The USDA offers two different loans: Guaranteed and Direct.

Guaranteed loans

Guaranteed loans are offered by private lenders and make up most of the USDA loans offered in the US.

Direct loans

Direct loans are offered “directly” from the USDA and are aimed at helping “low and very low” households—annual household income between $31,550 to $50,500—buy a home.

Note: We cover the USDA loan requirements for Guaranteed loans in this article. For information on Direct USDA loans, see the USDA website.

USDA lenders, the process, and how to apply

The USDA loans have an extra step compared to most other mortgages—they require approval from the lender and the government agency.

The additional step can add a few extra days or weeks to the processing timeframe. But otherwise, applying for a USDA loan in Maine is as straightforward as applying for any other mortgage.

1. Submit your application and supporting financial documentation to your lender.
2. Start house hunting and find your dream home
3. Make an offer on the home you want to buy and get an accepted offer from the seller
4. The lender can now order a home appraisal
5. After reviewing the appraisal, your lender will finalize their approval
6. This is the extra step: the lender sends your approved application to the USDA for their separate approval
7. Once the USDA approves your loan, your lender draws the final loan documents, and you sign them.
8. You close on your USDA home loan and get the keys.

Maine USDA loan FAQ

Do you qualify for a Maine USDA loan?

With most of the state of Maine eligible for USDA loans, borrowers looking for no-down-payment, low-interest loans could qualify for a mortgage in their preferred neighborhood.

To determine your eligibility, consider the following key requirements:

• Minimum Credit Score: While the USDA does not set a strict minimum credit score, most lenders prefer applicants to have a score of 640 or higher. This helps ensure you can secure favorable loan terms.
• Debt-to-Income (DTI) Ratio: Lenders evaluate your DTI ratio, which measures your monthly debt payments against your gross monthly income. Aim for a DTI ratio of 41% or lower to improve your approval chances.
• Financial History: If you’ve experienced bankruptcy or foreclosure, note that most lenders require a waiting period of at least three years before you can qualify for a USDA loan.
• Stable Income: Demonstrating a reliable income source is crucial. This can be through employment, retirement benefits, or other verifiable income streams.
• Property Appraisal: The property you intend to purchase must undergo an appraisal to ensure it meets USDA standards and is priced appropriately. This appraisal also confirms that the property meets essential safety and livability criteria.

By understanding these requirements, you can better prepare yourself for the USDA loan application process in Maine. Consider consulting with a knowledgeable lender who can guide you through each step, enhancing your chances of securing your dream home with a USDA loan.