Find out if you are USDA Loan Eligible, call us now at (855) 956-4040
A USDA loan is part of a unique program designed by the United States Depart of Agriculture. Its goal is to assist low-to-moderate income households purchasing a home while simultaneously stimulating economic growth in suburban and rural areas of the United States. While this program has many benefits, there are strict eligibility guidelines that must be met. Are you wondering if you may be eligible? This article will tell you everything you need to know about whether you qualify for the USDA home loan program.
USDA Loan Qualifications
Even if they know the program exists, many people dismiss the idea of a USDA loan for several reasons. They assume that it’s only for farmers or those otherwise involved in the agriculture industry. Maybe they are put off by the term ‘rural,’ thinking they’d have to live too far away from modern-day conveniences. None of this is true. The USDA home loan
program is for anyone of low-to-moderate income willing to settle down outside of a major metropolitan area. It’s a win-win situation. You have the opportunity to buy a house much more quickly, and the government can ease congestion in large cities while fostering economic growth in outlying communities.
Am I Eligible for a USDA Loan?
Eligibility status for a USDA home loan is a bit more involved than other mortgage types. There are basic requirements for this program concerning your income, credit,property type, and where your home is located. These guidelines exist to
ensure the USDA upholds its mission of extending home ownership opportunities to low-to-moderate income families. Before we dive into whether you qualify for a USDA mortgage, we want to reiterate that the government is not the one loaning you money. You are still working with a lending institution that puts hundreds of thousands of dollars on the line in good faith. Don’t think that just because your loan has extra insurance you are not held accountable if you can’t pay it back. Having a foreclosure on your credit report will damage your financial growth for years. That being said, let’s take a look at whether you are suitable for this fantastic program!
The USDA has a rigorous policy surrounding the maximum amount of money you are allowed to make and still qualify for a guaranteed loan. Otherwise, just anyone would be able to take advantage of it, possibly bankrupting the program! Income limits are a moving target, based on where you live and the number of people in your household. If between 1 and 4 people live under the same roof, income must not exceed 15% of your geographic area’s median household income. That percentage increases as the number of people in the household grow. For example, the income limit in rural
Wise County, Texas, is $90,300 for a family of four, and $119,200 for a family of eight. The income limit for some areas surrounding Boston, Massachusetts, skyrockets to $154,900 for a family of four and $204,450 for a family of eight due to the high cost of living. If you’d like to check out the limits for your area, you can view them here. The USDA also has a USDA's comprehensive calculator that will tell you if you meet the income requirements for the area you’re looking to purchase.
USDA loans fall under the Rural Development agency’s jurisdiction, whose mission is to increase rural communities’ economic growth opportunities. You can only finance a home under this program if it falls within an approved geographic location. But, don’t think you’ll be stuck out in the middle of nowhere. Believe it or not, 97% of the United States is
considered eligible for USDA approved financing. You won’t be able to buy a home in New York City, but there are suburbs outside the metropolis that would be eligible. You can look on this map created by the USDA to see if the address your considering is eligible for USDA financing.
While the two items above are non-negotiable, you have much more flexibility when it comes to your credit history requirements. Your credit score is calculated by the Fair Isaac Corporation, which is known as your FICO score. Banks use
this score to judge how you’ve handled your finances in the past. The score is created by an algorithm that encompasses your payment history, the total amount of debt, credit card usage, and the age of your credit. The higher your number, the better your credit. An exceptional credit score is considered anything over 800, very good credit over 740, and
good credit anything over 670.
As long as your credit score is 680 (considered fair credit) or higher, your application can be streamlined through loan processing. It may even be possible to obtain approval with a score lower than 600. However, other underwriting
requirements become a lot more stringent.
Your DTI is the ratio of your monthly debt payments compared to your gross monthly income. Debt payments are different than expenses. Your car loan, credit cards, student loans, and mortgage are all considered debts. Expenses are basics that you need to survive, such as food, gas, and utilities. To qualify for a USDA home loan, the total amount of your
monthly debt payments must not exceed 41% of your gross monthly income (i.e., your income before taxes). For example, say your gross monthly income is $4,000. You have a credit card payment of $50/month, a car payment of $199/month, and your mortgage will be $1,000/month. If you divide your total debt payments ($1,249) by your gross monthly income
($4,000), you get 31%, well within the guideline.
Because the USDA is backing the loan for you, they have a vested interest in the property you’re looking to purchase. The point of offering the program is to ensure a safe, secure home for those of modest means. Once you are determined eligible for USDA financing, you can buy an existing property, build a new home, or even refinance a
current mortgage. The only requirements are:
What About a USDA-Issued Loan?
All of the information above is geared toward a USDA-backed mortgage guarantee loan, issued through a certified lending institution. However, in certain situations, the USDA will provide financing directly to a borrower that demonstrates extreme need. This loan is called the Section 502 Loan Program. It’s there to help very low-income households acquire livable housing. Your income needs to be below the low-income limit for your area to qualify, and you must be unable to get a loan by any other means. If you’d like more information on this program, you can read the pamphlet available directly from the USDA.
Your New House is just a Phone Call Away!
When it comes to financing a home purchase, there are a ton of choices out there. A USDA loan is just one of many. But when it comes down to it, if you fall within the income limits, have fair to decent credit and a steady income, you should have no trouble qualifying for a USDA home loan. You may be able to get into your dream home sooner than you thought! Get more information by calling us at (855) 923-5041.
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