The USDA Rural Development’s Single-Family Housing Guaranteed Loan Program is designed to help borrowers low to moderate income earners purchase homes in rural areas. USDA home purchase loans are an excellent benefit for first time home buyers as well as growing families looking to upgrade their living situation. USDA loans are a very attractive 100% financing option for borrowers looking for an affordable home purchase option. They are home loans with low rates aimed at encouraging home purchases in rural and upcoming areas. But rural doesn’t always mean remote! Don’t assume that the eligible properties are all located miles from civilization. With a quick eligibility check you can to track down homes that meet the United States Department of Agriculture guidelines. And guess what, most are close to some of the largest cities like Atlanta, that continues to see urban sprawl.
Are you looking for a little more space and slower pace of life? Is owning more land important you? Well maybe a USDA is the perfect loan for you.
Why is a USDA Purchase so Great?
The USDA offers no money down mortgages which makes it one of the most affordable programs available when you’re looking to buy a home. Since saving for a down payment on a new home purchase can be a stopping point for many, this allows more borrowers to realize the goal of home ownership through the USDA program. Mortgage insurance can also add 5 – 10% to the total cost of your mortgage payment when you put down less than 20% This however does not apply for USDA Home Loans since the program allows for 100% of the loan to be financed. By avoiding mortgage insurance, you can literally save hundreds per month on your mortgage payment.
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The name of the game when you look at USDA is having compensating factors in order to qualify. These include high credit score, low debt to income ratio and assets that will help offset any negative factors on your application or credit history. The good news is, USDA uses common sense underwriting so it it’s a big advantage when it comes to getting approved for your mortgage. Interest rates for USDA loans are also extremely competitive as compared with traditional loans. Paying a lower interest rate on your loan can make a big difference not only in your monthly payment but how quickly you pay down your mortgage.
Perks of a USDA Loan
640 credit score OK
Common sense underwriting
Gift Funds OK
Large lots OK (more acreage)
Seller can pay closing costs (up to 6%)
USDA Loan Ready Checklist
When you set your phone meeting with your USDA mortgage advisor, be prepared. Here are the documents you want handy when you have your no obligation consultation.
Pay stubs for the last 30 days or most recent leave and earning statement
W2s for the last two years for all borrowers and all employers
Last 2 years tax returns (if self employed)
Most recent bank statement (all pages)
Purchase contract (If executed)
If you pay or receive child support, supply divorce decree and proof of timely payments.
Be sure to ask your USDA mortgage adviser for the specific documents needed for your unique mortgage situation.
What Are the Waiting Periods After a Credit Event?
3 Years from Foreclosure or Short Sale
2 Years from Discharge of Chapter 7 Bankruptcy
1 Year from Discharge of Chapter 13 Bankruptcy
What Are the Eligibility Requirements for a USDA Loan?
Income Limit – There are income limits you must meet before getting approved for a USDA loan. Basically, you can’t make more than the median income in the county you’re looking to purchase in. If you earn more than the limit, you will not get approved. The number of people in your home can make a difference so be sure to consult your licensed mortgage advisor.
Property Type – Only primary residences and allowed and the home must be a detached single-family residence (SFR)
Credit – The minimum credit score requirement is 640 or higher
Debt Ratio – Based on compensating factors your debt to income ratio can be as high as 45%
Geographic Area – Homes must be in a designated area considered Rural for USDA qualifying purposes. CLICK HERE to quickly find out if the property is located inside an eligible area.
These are the questions you should be asking yourself at this stage:
Am I open to living in a rural area?
Is 100% financing something that’s important to me?
Do I have compensating factors that will help me get qualified?
Am I a low to moderate income borrower?
It’s always good to fully understand the requirements when attempting to qualify for a USDA home that way you can approach the home approval process with confidence.
Once your USDA mortgage advisor has the proper information in hand and you have completed the application, they will complete your approval and go over all the details with you. You will also receive a pre-approval letter for you to start shopping for your new home. This is a critical step since it will let sellers know you are serious and are approved to purchase their home. Your realtor will use the pre-approval to help negotiate and get you the best deal on your home.
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