USDA Assumable Loans: What You Need to Know

Everyone talks about VA and FHA assumable loans. But there's a third type that gets almost zero attention: USDA loans. And they're assumable too.

USDA loans (officially called Rural Development loans) are government-backed mortgages for homes in eligible rural and suburban areas. If you think "rural" means middle of nowhere, you'd be wrong. Plenty of areas that feel suburban qualify for USDA financing. In Colorado, that includes parts of the Front Range you wouldn't expect.

How USDA Assumptions Work

The basics are similar to FHA assumptions. The buyer takes over the seller's existing USDA loan at the original rate and terms. The lender reviews the buyer's qualifications and approves the transfer.

Key requirements:

• The buyer must meet USDA income limits (there are maximum income thresholds)
• The property must still be in a USDA-eligible area
• Standard credit and DTI requirements apply
• Lender approval is required

That income limit piece is the main difference from FHA and VA. USDA loans are designed for moderate-income buyers, so there's a cap on how much you can earn. The limits vary by county and family size, but they're more generous than you might expect. In many Colorado counties, a household of 1-4 people can earn up to $110,650.

Why USDA Assumptions Are Underrated

USDA rates from 2020-2021 were incredible. We're talking 2.5% to 3.5%. And because USDA loans already required $0 down payment, many of these sellers have been building equity for 4-5 years now, making the loan balances reasonable.

The other advantage: USDA properties tend to be in more affordable areas. So the equity gaps are often smaller than what you'd see on a $600K Denver home. We're talking homes in the $250K-$400K range in places like Greeley, Fort Lupton, Pueblo, and smaller communities along the Front Range.

Smaller equity gap = easier to close the deal.

The Numbers

Let me run a quick example. A $300,000 home in Weld County with a USDA loan at 2.875%. Remaining balance is $260,000 with 25 years left.

Your assumed payment: about $1,214/month.

A new mortgage at 7% on $285,000 (5% down): about $1,896/month.

Monthly savings: $682. Over 25 years, that's over $204,000.

And the equity gap is only $40,000. With a second mortgage at 5% down, you could get into this home with $15K out of pocket. Pretty sweet deal for a $682/month savings.

Finding USDA Assumable Properties

This is trickier than FHA or VA because there are fewer USDA loans overall. But they exist. Here's how to spot them:

• Properties in USDA-eligible areas (use the USDA eligibility map to check)
• Homes purchased between 2019-2022 with government-backed financing
• Look for 0% down payment purchase histories in MLS records

Or work with someone who tracks them. I monitor all government-backed assumable loans in Colorado, USDA included.

Qualification Differences

USDA has a few unique requirements:

• **Income limits apply.** You can't earn above the USDA threshold for your county.
• **The property must remain in a USDA-eligible area.** Areas can lose eligibility over time as they become more urban, but if it was USDA-eligible when the loan was originated, you should be fine for assumption.
• **You must intend to live in the home as your primary residence.** USDA loans are for owner-occupants only. No investors.

That last point is the big limitation. If you're an investor, USDA assumptions are off the table. But for primary residence buyers who meet the income limits, these are golden.

The Closing Process

Almost identical to FHA assumptions:

1. Get pre-qualified
2. Find an assumable USDA property
3. Make an offer with assumption contingency
4. Submit assumption package to the servicer
5. Servicer reviews and approves (30-60 days)
6. Close

Closing costs are minimal. No origination fee, often no appraisal, and the assumption fee is modest.

Bottom Line

USDA assumable loans fly under the radar, but they're a legitimate path to homeownership at a rate that's 3-4 percentage points below today's market. If you're looking in eligible areas and meet the income requirements, don't overlook these.

The fact that most people don't even know USDA loans are assumable is exactly why there's opportunity here. Less competition, lower prices, and the same incredible rate savings.