The loan process for USDA loans is slightly different than any other loan type. The money you receive for the loan comes from the lender you choose, but the USDA does have quite a say in whether or not your loan gets approved; in fact, they have final approval. This is because this loan product works a little differently – the loan is meant for people that are in lower than average income brackets; if you make too much money you do not qualify. In addition, because the USDA guarantees the loan, they have a say in who gets approved in order for them to minimize their own risk.
Starting the USDA Loan Process
Starting the USDA loan process is much the same as any other loan. You start by shopping for a lender; in this case, the lender must be USDA approved. The lender will go through the process of evaluating your application, credit history, and necessary documents. A USDA approved lender has a handle on what the USDA will and will not approve, so they will not waste your time making you wait for long periods of time to determine if you qualify for the loan. The lender does not have the final say in what gets approved; however, so once the lender looks over your documents, the entire package is sent to the USDA.
The lender will send the USDA an entire package that includes your credit history, the appraisal, your income documents, and any pertinent information regarding your family that would give you allowances on your income. Remember, in order to qualify for a USDA loan, you have to meet the income requirements, which means you cannot make more the maximums allowed in your area. You get allowances for any of the following situations though:
- $480 for any children under the age of 18 or full-time students over the age of 18 living with you
- $480 for any disabled person living with you
- $400 for any senior living with you
These allowances come directly off the top of your income, helping you to qualify for the USDA program.
USDA Loan Approval
Once your loan is ready for delivery to the USDA, the process is out of the lender’s hand. You will likely have a hand in the process when you are dealing with the lender, but once the package is off to the USDA you will not know anything. The USDA can take quite a while to get your loan processed – sometimes as long as several weeks. There is a spot on their website where you can inquire about the status of your loan, though. Simply visit https://usdalinc.sc.egov.usda.gov/ and follow the prompts to get information on your loan.
The basic requirements to meet in order to receive USDA approval include:
- Credit score higher than 580
- Debt ratio no higher than 29 percent on the front end (mortgage payment only)
- Debt ratio no higher than 41 percent on the back end (total monthly payments)
- No more than 2 late payments on your housing in the last 36 months
- No late housing payments for the last 12 months (if your credit score is less than 620)
If you pass these requirements and your property is within the USDA boundaries, which can be found on the USDA website, you have a good chance at loan approval and just have to wait the loan process out. In the end, you are given a loan with no down payment requirements and great terms that enable you to purchase a home in a rural area.