Thousands of rural homebuyers have reached their goal of homeownership thanks to USDA-backed loans. While USDA loans are one of the best loan options available, there are still misconceptions about what these loans are and how to qualify for them. They are designed for buyers who wish to purchase a rural property to use as their primary residence. This property could be a house, manufactured home, town house, or condo. If you think you might be a good candidate for a USDA loan, call one of our specialists today to learn more!
USDA Loan Minimum Qualifications
- U.S. citizen or permanent resident
- Proof of credit and a credit score of 640 or higher
- Proof of stable income
- 12 months of no late payments or collections in credit history
- Household income less than 115% median income in the area
- Property in a qualified rural area and for use as the primary residence
These requirements are the minimum for a USDA loan. Some might vary, and many lenders have additional boxes to check before approving a loan. This can mean that you meet all of the government’s requirements but get rejected for a loan because of other requirements that haven’t been met. TX Home Now takes away some of this uncertainty by making sure you qualify for programs like FHA and USDA loans.
While your credit score is important when it comes to a USDA loan, there are other factors that make a difference as well. The lender will look at your repayment patterns and credit utilization in your credit history. While someone with a credit score below 640 might be approved for a USDA loan, it would require manual underwriting. This could mean more guidelines and rules to abide by.
Length of credit history can affect your chances of being approved for a home loan. Lenders want to see that you have a history of making payments on time. If you have no established credit, your chances of approval are lower. Our specialists can advise you on ways to increase your credit score and build your credit so that you’re more likely to be approved for a USDA loan.
The USDA uses four income calculations to determine a borrower’s eligibility. They are:
- Annual Household Income
- Adjusted Annual Household Income
- USDA Qualifying Income
- Repayment Income
You must have verifiable and stable income that is likely to be long-term. Proof can come in the form of tax returns and pay stubs. The USDA has income limits to ensure the intended recipients in the low to moderate-income group are benefiting from the program. A one to four-member household has a limit of $82,700 and a five to eight-member household has a $109,150 limit.
There is a difference between qualifying and repayment income. Qualifying income tells the lender whether a borrower meets the income requirements, and repayment income shows whether or not they have the ability to repay the loan. The lender considers the borrower’s debt-to-income (DTI) ratio as well. Borrowers with a high amount of debt are deemed less likely to be able to afford loan repayment. The USDA standard is typically 41%. It is possible to be approved with a higher DTI, but it will mean more rules and guidelines.
While the USDA loan is meant to help rural areas flourish, their definition of rural is rather generous. Many suburbs qualify for residential home purchases under these initiatives. Rural areas are defined by their proximity to an urban area and how open the space is. The population requirements have a maximum of 35,000, which depends on the area’s designation. This broad definition means that most of the country’s land qualifies for a rural development loan.
The intent of the USDA loan is to make safe and sanitary residences available for low to moderate-income households. Those who are eligible can refinance their home, purchase an existing home, or build a new home. The USDA has additional requirements for the property being financed. Some of these include:
- The property must be the homebuyer’s primary residence.
- The site must have street access, a driveway, or a road.
- The property must have access to utilities, water, and waste disposal.
USDA loans cannot be used for a property that will produce income. Barns, commercial greenhouses, or facilities for livestock will still be eligible if they are not used for commercial operation. The loans can also be used for new construction, modular or manufactured homes, short sales and foreclosed homes, or condos and townhouses.
Get Into Your Dream Home with TX Home Now
Not sure if a USDA loan is the best option for you? Give us a call and we will be more than happy to discuss your loan choices so we can get you into your dream home as soon as possible! TX Home Now helps Texas families find down payment assistance through a variety of government programs. Call us today to talk to a specialist and find the program that’s right for you!
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