For those looking to purchase a house in a rural area, the USDA loan is an excellent option. It is designed to help people with low-moderate incomes buy homes in rural areas. In order to qualify, you must meet basic eligibility requirements, and your debt-to-income ratio should not exceed 50%. You must also prove that you can afford your mortgage. If you have a stable source of income, such as a job, you should be able to get a USDA home loan.
To find out if you are eligible for a USDA loan, use the interactive map provided on the USDA website. This will allow you to select your county of residence, and then narrow down your results based on your income and property. Once you have a clear idea of what your monthly payments will be, you can apply for a USDA loan.
Who is eligible for a USDA Loan?
To get a USDA loan, you must meet minimum credit standards and income requirements. Lenders will also consider your PITI ratio (principal, interest, taxes and insurance) and your DTI ratio. The DTI ratio is a measure of your monthly debts divided by your gross monthly income. A DTI of less than 41% is considered an excellent level. Applicants who have a high DTI or a high debt-to-income ratio are likely to be denied.
Applicants must be employed full-time for at least 24 months, and have an income that is stable and reliable. Additionally, applicants must have three years of consecutive bankruptcy payments on their record. They must also not have been suspended from other federal programs. Lastly, applicants must not have been late on housing payments for more than one year.
USDA loans do not require a down payment. However, you may be required to pay an up-front insurance premium. This is typically 1% to 2% of the total amount of the loan. Depending on your lender’s policy, you may be required to provide additional credit verification. Examples of verification can include utility bills, insurance payments, or rent payments.
Although the standard credit score for most lenders is 640, some lenders will be willing to work with people with lower credit scores. In the case of credit score violations, USDA lenders may resort to manual underwriting. Also, applicants with less than 640 credit are subject to more stringent guidelines.
For applicants with a low credit score, the USDA Rural Development program is available. Known as Section 502 loan, this program is intended to help single-family homeowners buy a home in a rural community. Like other loan programs, the eligibility requirements for this type of loan vary by location. Generally, it requires that the applicant live in a USDA-designated area. Specifically, this means that the property will be located in an area with a population of less than 10,000.
USDA loans can be used to build a new home, renovate a current home, or refinance an existing loan. These types of loans are often offered with better interest rates than conventional loans, and they allow you to put as little as 0% down on the house.