The USDA Rural Housing loan program is a government mortgage that is backed by the United States Department of Agriculture, and offered through approved lenders.
The program is designed to promote homeownership opportunities in eligible rural and suburban areas. What makes USDA particularly attractive is the 100% financing option, eliminating the need for a down payment.
The primary barrier for many homebuyers is the down payment requirements by conventional mortgage programs. USDA eliminates that barrier and puts homeownership within reach for many. Let’s explore the program benefits and discuss the application and qualifying criteria buyers should know.
Home buyers that have questions or would like to start their application can connect with us today by submitting the 15-second Quick Contact Form.
Benefits of 100% USDA Rural Housing Loans:
USDA loans are a game-changer for first-time homebuyers and move up buyers alike. Besides the zero down payment, they offer secure fixed interest rates and lower mortgage insurance costs compared to conventional or FHA loans. These benefits can make owning a home more accessible than you might think. Other USDA benefits include:
- 100% Financing
- Seller concessions permitted for buyers closing costs
- No loan amount limits, buyers qualify based on their debt-to-income ratios
- Lower upfront and monthly mortgage insurance costs
- No prepayment or early payoff penalties
- No special first time home buyers class or education required to apply
- USDA refinance options are readily available if interest rates decrease in the future
USDA Mortgage Qualifying & Eligibility:
Meeting the qualifying & eligibility requirements is essential for securing a USDA loan. These requirements ensure the program benefits those who need it most.
Household Eligibility Income Limits:
USDA offers two different loan types that are targeted at low to moderate-income families. The USDA Direct program is focused on low income households and these loans are processed in house directly by USDA. The more popular USDA 502 Guaranteed program is focused on moderate income households, these make up the majority of USDA loans and are processed by approved lenders and banks.
The income limits vary by location and family size, so it’s important to check the specific limits for your area. For most of the country, the current gross income limit for the 502 Guaranteed program is $112,450 for a household of 1–4 members. Larger households with 5 or more members can make up to $148,450.
These income limits are even greater in more expensive high-cost locations in select parts of California, Florida, etc. Furthermore, households can take approved income deductions for dependents, child care expenses, elderly care, etc. Please contact us today for a quick income review of your household.
Property Location Eligibility:
The home you plan to purchase must be in a USDA-eligible area. The home seller is not of concern, just where the house is physically located. These areas are typically rural or suburban, but you might be surprised to find that many regions qualify. The USDA provides an online map here where you can check whether a property address is eligible. Buyers can read more about USDA eligibility here.
*Please contact us (7 days a week) to discuss other 100% down payment assistance options if your location or household income is not eligible for USDA.
USDA Credit Score:
While USDA loans are more lenient than conventional loans, having a good credit score can still improve your chances of approval. A credit score of 640 or higher is typically required for an automated GUS loan approval. But some buyers with slightly lower credit scores down to 600 can be approved through a manual underwrite and strong compensating factors, such as a down payment, or larger savings.
Employment & Work History:
USDA lenders require a solid two-year employment history with no extended or unexplainable gaps in employment. Switching employers within two years (same line of work) is acceptable. Commissioned, 1099, or self-employed borrowers will need to have a solid two-year history with tax returns. Please note this does not apply to applicants who are recent college graduates, applicants on total disability or retired/pension applicants.
USDA Debt to Income:
Most home loan programs have debt-to-income ratio limits, and USDA is no exception. USDA is typically looking for buyers’ housing debt ratios to not exceed 29% of their gross income. Total debt ratios (housing debt plus all other monthly debt listed on the credit report) is not to exceed 42%. Note that child support, alimony payments, and student loans will be included in the overall debt.
The debt ratio limits are firm for loan files that require a manual underwrite, these are typically files with lower credit scores. Slight exceptions to the debt ratio rules can apply to applicants with strong compensating factors like high credit scores (720+) good bank savings (reserves) etc. Additionally, files that receive an accepted approval under the USDA automated GUS underwriting system.
Have questions or ready to get started? Please just call the number above, or submit the Quick Contact Form to connect with a USDA loan specialist 7 days a week.