The USDA Home Loan Program was designed to help residents with low-to-moderate income finance properties within the Rural Development area of the United States. The eligibility of these properties are also determined by Rural Development.
With little to sometimes no down payment required and up to 100% financing on a property, USDA home loans are great for dense areas with a small population of 25,000 or less residents.
Eligibility Requirements for USDA Home Loans
One of the main eligibility requirements for a USDA home loan is the location of the property. The choice of property in which a borrower is interested in making a purchase on must be in an eligible rural area. Also included in USDA program guidelines are:
- You must not be able to qualify for a Conventional mortgage loan prior to applying for a USDA mortgage.
- You must retain a decent credit history.
- You must already have a steady adjusted area median income of up to 115%.
- You must not show any delinquencies on any tax or non-tax debts.
- No judgement liens being held against you on any property in result of debt owed to the government.
There are two formula methods that the Rural Development utilizes to determine a borrower’s household income, which is:
- The interest rates, the burden of principal, and an insurance (PITI) that must come out to a minimum of 29% or less than the gross monthly income.
- The borrower’s total monthly debt must not exceed 41% but less than the total gross monthly income.
The USDA home loan program is a specific loan type, however, this does not exclude first-time home buyers. All eligible borrowers must keep in mind the occupancy requirements of a USDA home loan.
Requirements of the USDA Home Loan Program
By lending to lower income households who are not eligible for a Conventional mortgage loan, the USDA has helped lenders to become a little more open to lending to these type of borrowers.
USDA home loans can usually be utilized for:
- Modular Homes
- USDA-approved Condominiums
- New or Existing Single-Family Homes
- New Manufactured Homes
As long as the property is purchased as a primary residence and meets living condition standards under Rural Development terms and guidelines. Another important factor to keep in mind is that though the USDA may allow for finance of a new manufactured home, it usually does not allow for a purchase on an existing one, unless that particular property has already been financed with a USDA loan prior.
Properties with a pool are not usually not eligible under a USDA finance. The property must meet building codes under USDA property guidelines, including the size of the home, design, and costs. The USDA loan amount must also not exceed the local loan limit as well.
With a USDA Rural Development Loan, there is typically no minimum credit score that a borrower must meet, but you must be able to display the willingness and the ability to pay back the loan and oblige by the mortgage terms and conditions.
Even though there are no set minimum credit score, you must not have more than one late payment in the last 12 months on your credit report and if you do have a late payment, the report must indicate that you have been trying to repay on on what you owe. Verification of income for the past 2 years may also be required as well when qualifying for a USDA mortgage loan.
USDA Home Loan Benefits
There are several benefits that qualified borrowers can take advantage of that they would otherwise not be able to with any other mortgage program, such as:
- Lower interest rates
- Lower monthly mortgage payments
- USDA mortgage homeowners are able to apply their saved income to other important household expenses
- Up to 100% financing (optional)
- Little to zero down payment
- Closing costs can sometimes be added to the loan itself
- More relaxed on credit ratings
- No prepayment penalties
- No mortgage insurance required
USDA Loans: Finding The Right Lender
Finding the right USDA loan lender is easy if you know where to look. A USDA loan lender will have the right experience and underwriting team who can get all of your USDA loan questions answered as well as help you with the ins and outs of the USDA loan program. Get started with the right USDA loan lender now.