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USDA Loan Preapproval and Prequalification

Reviewed by: David Naimey

Approved by: Chad Turner


  • USDA loans are for rural property purchases.
  • Prequalification and preapproval are vital steps.
  • Prequalification estimates borrowing capacity.
  • Preapproval involves a detailed financial review.
  • Preapproval signals seriousness to sellers.
  • They aid in budgeting and boost buyer credibility.

USDA loans are backed by the United States Department of Agriculture and are aimed at people wishing to buy a property in a rural area. People working from home or who can adjust their lifestyle to a rural setting can benefit from low mortgage rates and favorable terms and conditions on their mortgage with a USDA loan. 

Before you start looking for a home that qualifies under the USDA home loan requirements, you should get loan prequalification and loan preapproval to get an idea about how much money you can borrow and what type of property you can afford, provided the property you wish to buy fulfills the USDA property eligibility criteria. This will help you define your property search and bring you one step closer to home ownership. 

USDA Loan Prequalification

USDA Loan Prequalification, which is part of the application process for conventional loans, is the first step in the USDA loan process. It provides an estimate of what you might be able to borrow, based on the financial information you provide to the USDA-approved lender. This step is generally quick and can often be done online or over the phone.

When you apply for prequalification, you need to provide your housing lender with an overview of your financial situation, including your household income, assets, debts, and credit score. The USDA lender uses this information to give you an idea of the desired loan amount you might qualify for.

Prequalification is not a guarantee of USDA loan approval, as it does not involve a thorough examination of your financial records. Rather, it’s a useful tool for budgeting and understanding what you can afford, while you check your USDA qualifications

Prequalification gives borrowers a range of properties that they can realistically afford with their current income, within the USDA income limits. They can narrow down their search based on what their bank is willing to lend them. If they want a bigger home, they might need to move to a more affordable area, always in rural locations. If they value proximity to an urban area, they can pick a smaller property that still lies within USDA-eligible areas. 

It’s important to remember that prequalification does not bind you to a particular lender. You can get prequalified with multiple USDA lenders to compare loan options.

USDA Loan Preapproval

Preapproval is a more in-depth process than prequalification and is a stronger indicator of your ability to meet the USDA eligibility requirements and close a USDA loan. 

It involves a comprehensive review of your financial background, including a credit history check, verification of employment, and an assessment of your financial documents (like tax returns, bank statements, savings accounts, and monthly income and pay stubs). 

You must supply proof of ID, proof of employment, and other documents that show precisely how much you earn, how long you have been working, and the amount of monthly debts you already carry, such as student debt, medical debt, and credit cards. This way, the bank can safely assess your debt-to-income ratio and how much they can lend you towards the purchase of a property. 

Getting preapproved means a lender has conditionally agreed to loan you a certain amount of money for a home purchase. This gives you a more accurate picture of what purchase price you can afford and shows home sellers that you are a serious and qualified buyer.

The preapproval process usually requires documentation and can take more time than prequalification. The lender will verify your financial situation to ensure you meet the USDA loan requirements, such as income eligibility and creditworthiness.

Once you’re preapproved, you’ll receive a preapproval letter that you can use to demonstrate your buying power to real estate agents and sellers to find a home and close a purchase agreement. This letter typically has an expiry date, often 60 to 90 days from issuance.

Why Prequalification and Preapproval Matter

Both prequalification and preapproval are important steps in the home-buying process. Prequalification helps you gauge your USDA loan eligibility and plan your budget, while preapproval positions you as a credible buyer when you’re ready to make an offer on a home. Given the USDA loan benefits, it is worth going through these steps to prepare better for the loan application process.

In competitive housing markets, being preapproved can give you an edge over other buyers who may not have secured financing yet. It shows sellers that you’re serious and have the financial backing to follow through on your offer.

With prequalification and preapproval in hand, you are in control of your finances in view of the loan application process. You can take steps to identify and address any issues that might impede your loan approval, such as improving your credit score or saving for the USDA loan closing costs. For example, a better credit score can lower the interest rate charged on your USDA loan. 

Before you start looking at homes, make a solid start with a USDA loan prequalification and preapproval. These give you helpful insight into what you can afford and strengthen your position as a buyer. You have a clear picture of how much home you can afford and how much you will pay for your USDA mortgage every month. 

Prequalification and preapproval represent different levels of lender scrutiny and commitment. Both are tools that play a key role in preparing you for a successful home purchase under the USDA home loans program.

Frequently Asked Questions (FAQs)

What is the difference between USDA loan prequalification and preapproval?

Prequalification is an initial assessment of your financial situation to estimate how much you might be able to borrow. It’s based on self-reported financial information. 

Preapproval is a more in-depth process where the lenders will verify your financial details and provide a more accurate and reliable indication of your USDA loan program eligibility.

Do I need to have a specific property in mind for USDA prequalification or preapproval?

No, you don’t need to have a property selected to get prequalified or preapproved. These processes are about assessing your financial ability to purchase a home and the amount you can afford.

How long does the preapproval process for a USDA loan take?

The time frame can vary depending on the lender and the completeness of your financial documentation. Generally, it can take anywhere from a few days to a few weeks.

Is a USDA loan preapproval a guarantee that I will also get the loan?

Preapproval does not mean a guaranteed loan approval, but it is a strong indication that you are likely to be approved. Final approval will depend on factors such as the property appraisal and any changes in your financial situation.

Does prequalification affect my credit score?

Typically, prequalification does not affect your credit score as it often doesn’t involve a hard credit inquiry. Preapproval, however, usually requires a hard credit pull, which might have a minor temporary impact on your score.

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