USDA Loan?
Rural property owners in the United States may find themselves eligible for a USDA home loan. This is part of the USDA loan program. A USDA home loan differs from a conventional mortgage in a few key areas.
First of all, a USDA loan will not require any down payment to be made. That means that it is possible to finance the entire 100 percent of the value of the property. Secondly, closing costs can be rolled into the loan. However, there are income limits depending upon the county in which the home is located. There is a maximum income requirement, so that wealthy homebuyers cannot use the program. For those who are close to the limit, it is worth noting that certain expenses, such as childcare, can be accounted for.
In order to be eligible to utilize the USDA home loan program, the property being purchased has to be in an area that is designated as rural by the USDA. In addition, the person buying the home must occupy it. In other words, the home must be owner-occupied, as opposed to being an investment property.
"Loans are what we do, not who we are."- CEO, Steve Jacobson
Why we
love USDA Loans
*Some restrictions apply
Minimum Down Payment
Minimum 640+ credit score for manual underwrite. USDA will allow down to 620+ if run through GUS with an Accept (however, must meet specific credit criteria and ratios cannot exceed 29/41 debt-to-income ratio).
Private Mortgage Insurance
No (PMI) but a small monthly Guarantee Fee. The buyer is required to pay a 1% upfront fee (rolled into the note) and the monthly mortgage payment will include a small USDA annual fee of 0.35% thereafter.
Debt-to-Income Ratio
Credit scores 680+ will be reviewed more favorably in higher DTI. With credit scores of 680+, ratio wavier may be obtained (USDA discretion) to 32/44 as the DTI, with one comp factor.
Appraisal Guidelines
If the house appraises for over sales price, the lender can roll in the loan amount the amount of the costs up to the amount the home over appraises.
Grant/Bond Programs*
Allowed! It is important to note that grant or bond programs are income, credit, and debt to income limited.
Federal IRS
Tax Lien*
USDA allows a federal IRS tax lien to continue to be paid and not paid off and still close on the mortgage.
Bankruptcy (Chapter 7)*
Three years after discharge provided that good, reestablished credit history has occurred.
Bankruptcy (Chapter 13)*
USDA allows a borrower to be in the 13th month of that Chapter 13 repayment plan and still purchase*.
Max Loan Amount*
Must Purchase in an Eligible Rural Area* and be in guidelines for income limitations.
Down Payment
0% – no down payment to qualified borrowers
Gift Funds*
Allowed – USDA is more flexible with who can give a gift for the borrower’s funds to close.
Contribution
Up to 6% Seller Contribution allowed.
other important notes
In terms of the income requirements, applicants must have an income that does not exceed 115 percent of the median income in the area. In addition, the family cannot have adequate housing before making the purchase and must be able to demonstrate that it can afford the mortgage payments and any related fees. The credit history of the applicants does matter, so those with bad credit may have trouble getting a USDA loan.
All of the loans in the USDA home loan program will be structured to be repaid over the course of 30 years. The lender will determine the interest rate and whether or not the loan can be feasibly repaid.
The goal of the program is to encourage people to live in rural areas, which is certainly something that is beneficial to the United States Department of Agriculture.
USDA loans make a lot of sense for those who want to buy a home, but cannot afford to do so if they are required to make a normal down payment. Obviously, it is beneficial if they are already looking at homes in rural areas. However, as long as they are willing to move to one, they will be able to qualify.
Due to some of the requirements, USDA loans are not ideal for everyone. They typically work best for those who are flexible about where they live, or those who are already in rural areas.
this loan
is right for you?
Take a look at our loan comparison page here to find out more about other loan types and get a better feel for which one fits your needs best!
This may vary depending upon the specific type of mortgage you are applying for, as different agencies will need to be involved in the process. Typically the process plays out in a month or less, though some will go quicker. It is not uncommon to have the mortgage application processed within 10 days. It is critical that you get the application entirely completed, so that you can avoid any delays along the way.
The main thing that can delay the approval of a loan is failing to properly and completely fill out the applications. It is also important that you be completely honest on the applications, as any discrepancies may cause delays. In addition, changing jobs, having a change in your salary, changing your marital status or taking on additional debt can delay the approval of a loan.
Closing costs include items such as taxes, title fees and hazard insurance. Sometimes what is included in closing costs varies, and it can be impacted by the negotiation process on the sale price of the home, as the homeowners may or may not cover certain closing costs. You’ll want to have some money set aside to cover your closing costs.
Prepaids are items that you as the homebuyer pay at closing. This is a payment before the actual due date. These may be necessary depending upon the details of the closing. They include taxes, hazard insurance and other various assessments.
After you close, you’ll receive a letter that includes all of the dates and information that you need. If you want further details while you are closing, you should inquire about the specific due date of the first payment.
“Loans are what we do, not who we are.”
– CEO, Steve Jacobson