The U.S. Department of Agriculture (USDA) is the agency that makes it possible for familys’ in rural areas to purchase their own home with no down payment. USDA mortgage loans are offered to qualifying individuals and families across more than 95% of the U.S. land mass. Before applying for a USDA mortgage, you’ll want to make sure that you’re eligible. The most important tip to know is knowing that a USDA home loans can only be obtained if property eligibility, income eligibility and credit eligibility requirements are met.
1. Property Eligibility
Homes eligible for USDA loans are located in approved rural areas. The house must be located in an area that meets USDA’s definition of a rural locality, and that usually means outside city limits, or within a town that has no more than 10,000 people. These guidelines are not necessarily strictly enforced, and many areas in question may still qualify for a USDA mortgage. Interested home buyers can always visit the USDA website, type in the property’s address and learn whether or not the property qualifies for the loan.
2. Income Eligibility
Income eligibility will depend on three things: the borrower’s income, how many members there are in the household and the borrower’s age. A borrower can only make 115 percent of the median income of the area to qualify for a guaranteed loan. Those seeking a direct loan can only make 50 to 80 percent of the area’s median income. Potential borrowers can determine whether or not they qualify when they visit the USDA database. They will be able to enter the information outlined above for the locale they interested in and will learn the maximum amount of money that they can earn to qualify. Eligibility will also be determined by the applicant’s debt-to-income ratio. For example, the mortgage payment, the insurance and taxes can only comprise up to 29 percent of the borrower’s monthly income. Furthermore, borrowers can only spend 41 percent of their monthly income on their other expenses and debts. If all of these qualifications are met, the borrower may be able to submit an application for a USDA loan.
3. Credit Eligibility
Potential borrowers will need a credit score of 620 to qualify for these loans. Most lenders will require this score, but some lenders may be willing to place more weight on other areas of an applicant’s finances. If a borrower has a credit score above a 660, additional requirements may be eased through a streamlined underwriting process.
4. The Down Payment
USDA mortgages are so affordable because they do not require that borrowers have a down payment before they can receive financing to purchase a house. These loans will have closing costs, but borrowers do not necessarily have to pay these costs at closing if they do not have the means to do so. The closing costs will be added to the principle amount in these cases, if the appraised value of the home permits.
After people interested in a USDA rural mortgage find a property they would like to buy, the first thing they will want to do is go to the USDA website and make sure that the property is eligible and that they qualify for the loan. Doing so will help the process move along as smoothly and quickly as possible.