USDA loans offer the simplest qualification requirements, yet the most specific property guidelines over any other loan type. If you are a first-time home buyer or a subsequent homeowner, this program is a suitable method of financing a home if you fall within the low to medium income bracket for your area. There are many USDA Rural Home Loan Lending Requirements you must follow in order to qualify for this program, but if you meet those guidelines, the individual factors that enable you to get approved for the loan are among the most flexible in the industry.
USDA Credit Requirements
The credit guidelines for the USDA loan program are very flexible. Generally, you need to have a credit score higher than 580 in order to apply for this method of financing. If your score falls in between 620 and 580, the agency considers you a “higher risk” which means your file will be under more scrutiny than it would if you were to have a better credit history. In general, however, everyone must have the same basic qualifications, including very few late payments reporting on their credit report. More than one late housing payment in the last twelve months requires the lender to look back at your housing history for 3 years. If there are more than 2 late payments in that time, you become ineligible for the loan. All other credit requirements are simple to follow and easy to work around, especially if you have a high credit score.
USDA Rural Home Loan Lending Requirements: Income Guidelines
The USDA loan program is among the only finance products available that requires you to make less money, rather than more. Because USDA financing began to help those with low income become homeowners, you must fall underneath 115 percent of the average income for your area. Every area has a different median income based on its cost of living. In addition, your family size helps to determine the allowed total income for your household. For example, if you have 5 family members, you have a higher allowed amount than a family of 2 in the same area.
The USDA will take into account the salaries and wages of all adults in the house that work full-time as well as those that work part-time and have held that job for the last 12 months. Certain alternate incomes get figured into the amount as well. These sources include social security, disability, alimony and child support. Any income that can be proven by the source as well as its receipt with your bank statements and that is set to continue for at least 3 years will get figured into your total income.
The gross amount of earnings you bring into the household is not what the USDA uses to determine your eligibility, however. They use an adjusted figure, which takes into account the allowances you are eligible to deduct if you have children; anyone disabled living with you; or an elderly person residing in your home. The USDA calculates your eligibility after the specific deductions are taken.
Down Payment for USDA Mortgages
One of the largest benefits of the USDA loan requirements is the need for no down payment. The only other program that offers this benefit is the VA loan, which of course, you must be a veteran to receive. In addition to the ability to put nothing down, you can roll your closing costs and the 2.75 percent funding fee into the mortgage if there is room between the contracted purchase price and the appraised value of the home. If you wish to refinance into another USDA product, you can roll the closing costs into the mortgage if there is adequate equity to keep your loan amount less than 102 percent of the value.
USDA Property Eligibility
The USDA is rather particular about the properties it allows into its program, making it one of the harder requirements to meet. The property must be within the rural boundaries set forth by the agency, which you can find directly on their website. There are numerous areas considered rural, many of which you might not even realize, so it is worth checking out what areas can qualify for this program. Once you are within the boundaries, however, you must purchase a home that is modest in nature. This means that its price is not higher than the maximum loan amount set forth for your area. In addition, the home must not have a swimming pool or be used for any type of income production. An inspector will determine if the property meets USDA guidelines as well – it must be structurally sound, safe, and sanitary to live in for USDA financing.
The USDA loan requirements might sound specific and rather difficult to meet, but overall, they are much more flexible than any other mortgage product. Once you are within the USDA boundaries and have the credit score and low enough income to meet the parameters of the program, most lenders can work around all other requirements to get you qualified.