Unlock Rural Living with USDA Loans in New York

There’s no shortage of home-buying opportunities in the state of New York. From the suburbs of Buffalo to the hustle and bustle of New York City, an open mind will help you find a property that suits your personal needs and budget.

One of the primary challenges of buying a home is saving enough for a down payment. Fortunately, there are government programs — including USDA loans — that can help you finance your purchase without a down payment.

What is a USDA loan?

The USDA loan program, also known as a Rural Development or RD loan, is designed to spur homeownership in rural and suburban areas throughout the United States. It’s also referred to as the Section 502 Guaranteed Loan Program, making note of the portion of the USDA rulebook that outlines the program.

Eligible borrowers can purchase, build, rehab, or relocate a home with no down payment requirement. This is possible due to strong backing from the USDA.

What else:

• Specific USDA loan requirements must be met
• USDA loans are only for low and moderate-income households
• The loan comes with lenient credit and income guidelines

With benefits to both borrowers and lenders, it remains one of the most popular loan programs.

USDA-eligible areas in New York

The primary difference between the USDA program and other government programs is that it’s available only to buyers purchasing in rural areas.

Review the USDA’s interactive eligibility map to see which areas of New York are eligible.

As a primarily rural state, homes in most parts of New York are eligible for the program. The exception is major cities such as Buffalo, Rochester, Syracuse, and New York City.

Even though major cities are excluded, you don’t have to travel far outside of them to find eligible areas.

Some of your best options in New York include all the non-shaded areas surrounding:

1. Buffalo, New York

With a population of more than 275,000, Buffalo is one of the largest cities in New York. It’s located at the eastern end of Lake Erie and the head of the Niagara River. If you enjoy football and snow during the winter months and outdoor leisure activities during the summer season, it’s the perfect place for you.

Smaller communities, such as Marilla and East Aurora, are outside the city limit by only half an hour’s drive and are eligible for the USDA loan program.

Buffalo’s median home price: $209,500

2. Rochester, New York

There are several well-known communities just outside of Rochester where you can buy a home with a USDA loan. Brockport, for instance, is only 20 miles away. It’s a great place for homebuyers seeking a small-town feel with access to big-city amenities.

Rochester’s median home price: $168,250

3. Syracuse, New York

Home to Syracuse University, the city is popular among students, families, and professionals alike. Sullivan, Onondaga Castle, and Brewerton, which are all less than 30 minutes away from Syracuse, are full of homes that qualify for the USDA loan program.

Syracuse’s median home price: $172,000

4. Albany, New York

Albany is the capital city of New York and has a population of nearly 100,000. There’s a lot to like about the city, including its dedication to preserving both natural and cultural history. Search for USDA loan-eligible homes in areas such as Sand Lake, Pittstown, and Ballston Center, which are great suburbs not too far from the city.

Albany’s median home price: $235,000

5. Binghamton, New York

Located along the New York-Pennsylvania border, Binghamton is a small city with a population of approximately 50,000. It’s home to Binghamton Zoo at Ross Park, the Discovery Center of the Southern Tier, and a vast amount of green space. As a primarily rural area, you only have to travel 10 miles outside the city to find USDA loan-eligible communities.

Binghamton’s median home price: $118,000

Tip: The USDA definition of “rural” is broad. There are towns and cities in New York with tens of thousands of residents that qualify for the USDA program.

USDA loan income limits for New York

The USDA loan program is only for low to moderate-income households. But don’t let that scare you away. You can earn up to 115% of your area’s median income and still qualify.

The standard income limit is $103,500 annually for a one to four-member household. The limit is $136,600 for a five to eight-member household. If you’re house shopping close to an expensive metro area, such as New York City, the income limit increases (although keep in mind that you may have a hard time finding a home you can qualify for, even within these income limits). Here are some examples.

The USDA uses household income to determine if you fall within the income limits. This includes all adults over the age of 18, even if they are not on the title of the home.

Use the USDA’s income tool to check income eligibility.

The following income deductions are also available:

• Childcare expenses for children under 12
• Dependents living in the home
• Certain medical expenses
• Elderly households
• Care of household members with disabilities

One or more of these deductions may help you gain eligibility for the USDA loan program.

Learn more about USDA income limits.

USDA loan down payment and closing costs

A USDA loan does not require a down payment. This allows more people to afford a home, thus providing the real estate industry with a “shot in the arm.”

However, you do need funds for closing. If you don’t have enough money, you can work around this by rolling closing costs into the loan (if the purchase price is below the appraised value), asking the seller to pay them, or obtaining a gift from a family member.

Learn more about USDA Loan Down Payment and Closing Costs.

New York closing cost assistance grants and programs

Another option for paying closing costs is a cost assistance grant or program. There are several options in New York, all of which you should learn more about.

For example, the New York HomeFirst Down Payment Assistance Program provides homebuyers with closing costs and/or down payment assistance.

Eligibility requirements include:

• First-time homebuyers only
• The completion of a homebuyer education course
• Meet all income eligibility requirements
• Access to some money for a down payment or closing costs
• Pass a Housing Quality Standards (HQS) inspection before purchase
• Have a maximum household income up to 80% AMI

Even if you have the funds for closing costs, consider if you’re eligible for “free money” through any state programs.

USDA loan limits for New York

There are no defined limits for the Guaranteed USDA loan program. Instead, income limits indirectly cap the home price someone can afford.

Explanation: If a homebuyer’s income was exactly at the limit for an eligible area, they would make $103,500 annually or $8,625 per month. Depending on other debts, taxes, insurance, HOA, and interest rate, the individual’s home price would be capped based on their max DTI.

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

USDA debt-to-income ratio

The USDA home loan program has implemented a standard debt-to-income (DTI) of 29%/41% of the gross monthly income of applicants.

Because lenders use the USDA’s computerized underwriting system, the Guaranteed Underwriting System (GUS), you may be able to qualify with a higher DTI. For example, there’s a greater chance of approval if you have good or excellent credit.

USDA home loan mortgage rates in New York

Understanding the mortgage rate you qualify for is critical. This will greatly impact your monthly payment and how much you pay in interest over the term of your loan.

USDA home loan mortgage rates vary based on individual circumstances, such as credit score and economic factors. In most cases, USDA rates are lower than conventional loan rates because loans are backed by the government.

FHA rates are similar to USDA rates, but more costly mortgage insurance is associated with an FHA loan.

USDA property condition guidelines

The USDA shares property condition guidelines with the FHA:

• Home must be accessible
• Must have a functional HVAC and electrical system
• Home is structurally sound
• Adequate roofing (a minimum of two years of life remaining)
• Access to an adequate water supply
• A functional plumbing system
• Functional doors and windows

A home that does not meet these requirements may be eligible for a USDA rehab loan. If you want to build a new home, review our list of USDA construction loan lenders.

Pros and cons of a New York USDA loan

Buying a home is a big decision, so it’s critical to compare the pros and cons of any type of loan you’re considering. Here are some of the most important USDA pros and cons:

Pros

• No down payment required
• Low mortgage insurance rates
• Competitive interest rates
• Low credit score minimum

Cons

• Only 30-year, fixed-rate loans
• Mortgage insurance is permanent
• Income and geographical limits
• Extra time required to close on the loan

USDA loan vs FHA, VA, and Conventional loans

Don’t stop at researching the USDA loan program. Several other types deserve a closer look.

Conventional loan: A conventional loan is not backed by a government agency likeUSDA or VA loans are. In most cases, good credit and a minimum down payment of 3% are required.

FHA loan: Just the same as a USDA loan, an FHA loan is government-backed. However, a 3.5% down payment is required.

VA loan: Backed by the VA, these loans do not require a down payment but there is a funding fee. These loans are provided by private lenders.

USDA loan credit score minimum

Generally speaking, lenders require a credit score of 640+ to gain USDA loan eligibility. There are situations in which lenders will approve a borrower with a lower credit score, sometimes down to 580. If you know that your credit score is lacking, take steps — such as paying down credit card balances — to boost it before applying.

USDA mortgage insurance

A USDA loan Guarantee fee is equal to one percent of the loan amount and is wrapped into the loan. So a $200,000 home will end up with a final loan of around $202,000. There’s also a monthly mortgage insurance charge. For 2023, the “annual fee,” as it’s called, is set at 0.35% of the loan amount per year, which equals about $29 per month per $100,000 borrowed.

Both the upfront Guarantee fee and monthly fee are lower than FHA’s mortgage insurance.

How are the USDA Guaranteed Loan and Direct Loan different?

There are two USDA home loan programs: Guaranteed and Direct.

Guaranteed USDA home loans are the most common. They’re primarily for moderate-income borrowers and are issued by traditional lending institutions like your local bank or mortgage company.

The Direct USDA program is different, as these loans are issued directly by the USDA government agency. They’re only for borrowers with low ($50,500 annual income in most areas) and very low ($31,550 annual income in most areas) incomes.

Visit the USDA’s website for additional information on how the Direct program works.

USDA lenders, the process, and how to apply

In most ways, applying for a USDA loan is the same as a conventional loan. The one difference is that the USDA has to approve the loan after the lender. This adds another step to the process, which can tack on extra time before closing.

The basic steps of applying for a USDA loan include:

1. Choose a lender and complete an application.
2. Submit all required documentation.
3. Make an offer on a home, and get an accepted offer.
4. The lender orders an appraisal and finalizes the approval on their end.
5. The lender then sends the file to USDA for approval.
6. Upon approval, the lender draws the final loan documents.
7. Sign your documents.
8. The loan closes and you get the keys.

New York USDA loan FAQ

Become a homeowner in New York with a USDA loan

Rather than opt for a conventional loan, consider the benefits of a USDA loan. From flexible eligibility requirements to zero down payment, it could be just what you need to buy your dream home in the Empire State.