USDA Home Loans in Houston, TX

Yes, you can build a house with a USDA loan through the USDA construction loan program (officially called the USDA Single Close Construction-to-Permanent loan), which allows eligible borrowers in designated rural and suburban areas to finance both the land purchase and home construction with zero down payment, rolling everything into one mortgage that converts from construction financing to a permanent 30-year fixed-rate loan once the home is complete. The USDA construction loan offers the same incredible benefits as a standard USDA purchase loan: 100% financing with no down payment required, competitive interest rates typically lower than conventional construction loans, and flexible credit requirements, making it one of the most affordable ways for rural families to build their dream home from the ground up without needing substantial savings.

The requirements for a USDA loan in Texas include purchasing a home in a USDA-eligible rural or suburban area (which surprisingly includes many communities within 30-50 miles of Houston, Dallas, Austin, and San Antonio), meeting income limits that vary by county and household size (typically 115% of the area median income, ranging from $103,500 to $136,500 for a family of four in most Texas counties), having a credit score of at least 640 for automated underwriting approval (though some lenders accept 580-620 with manual underwriting), maintaining a debt-to-income ratio of 41% or lower, demonstrating stable employment history, and using the property as your primary residence.

The primary difference between a USDA loan and an FHA loan lies in location requirements and down payment requirements. USDA loans require the property to be located in a designated rural or suburban area, offer a zero-down payment option, and are designed for low- to moderate-income borrowers. In contrast, FHA loans are available in all areas (cities, suburbs, or rural areas) and require a 3.5% down payment, but are accessible to anyone who meets the credit and income requirements, regardless of income limits. The biggest advantage of a USDA loan vs FHA is the zero down payment: with a USDA loan, you can buy a $250,000 home with no money down (only closing costs), whereas an FHA loan on that same home would require $8,750 down plus closing costs, this makes USDA loans the more affordable option for families with limited savings who happen to be buying in qualifying suburban or rural areas.

The minimum credit score for a USDA loan is officially 640 to qualify for automated underwriting approval (the fastest and most common approval path). However, borrowers with credit scores between 580 and 639 may still qualify through manual underwriting, where a loan officer reviews your complete financial picture, including compensating factors like stable employment, low debt-to-income ratio, strong rental payment history, or significant cash reserves.

The closing costs on a USDA loan typically range from 3% to 6% of the purchase price and include the 1% USDA guarantee fee (which can be rolled into your loan amount so you don't pay it upfront), standard lender fees like origination, processing, and underwriting, third-party costs including appraisal, title insurance and search, home inspection, and prepaid items like homeowners insurance, property taxes, and prepaid interest.