Renters who want to buy a piece of the American Dream and get a home of their own in 2017 may want to consider a USDA loan. USDA home loans are available with 100% financing, low mortgage rates, affordable payments, and plenty of underwriting flexibility.
If you are weary of paying someone else’s mortgage, it’s time to pay your own with a USDA home loan!
Keep reading to discover 2017 USDA home loan requirements.
General Eligibility for USDA Loans
USDA home loans are guaranteed by the USDA federal agency in Washington DC. These loans are guaranteed against default, so USDA mortgage lenders are willing and able to offer generous underwriting flexibility.
USDA home loans are available for borrowers who meet specific income and credit standards.
Qualification for a USDA loan is easier than for conventional loans. Many of these loans do not require any down payment, and you can have a very low credit score and still qualify.
One of the major criteria for these loans is that the home must be located in an area that the USDA deems to be ‘rural’ Borrowers should check the USDA website to check if the home they are interested in qualifies under USDA guidelines.
Fortunately, the home does not have to be located in the sticks to be eligible; some homes that are located on the outskirts of major cities also may qualify for a USDA loan.
The eligibility map that USDA uses is still based upon 2000 census data. So, some homes on the map that aren’t really rural anymore still may qualify for a USDA loan.
Down Payment Guidelines on USDA Loans
USDA loans, along with military VA loans, are about the only 100% finance home loans left on the market today. FHA mortgage-loans require 3.5% down, although you can get the down payment in the form of a gift.
The no money down feature of USDA loans makes home ownership a real possibility for many people in 2017. Buying a home for the first time, or buying another home after a bankruptcy or foreclosure, can be tough because of a lack of equity. Having to put no money down makes it easier to get your piece of the American Dream. USDA is a popular zero-down mortgage for people looking to buy a house in a rural area of the country.
Guaranteed, 100% financing USDA loans are available to people with ‘moderate’ incomes. USDA states that ‘moderate’ means people with income up to 115% of the median income for the area. For example, a family of four in Orange County CA can make approximately $111,000 per year and still qualify.
Many middle-class couples find that they are within the income limits set by USDA.
Note that USDA will take into consideration all of the income in the house. If you have a 17-year-old in the house with a job, that income must be disclosed to the lender. The income does not have to be on the application but the lender does need to see all income in the house when determining if you are eligible.
USDA Loan Terms
USDA offers both 15-year and 30-year fixed mortgages. You cannot get an adjustable rate loan with the USDA program.
Interest Rates for USDA Home Loans
Mortgage companies and private banks make USDA loans available with low rates. USDA guarantees these loans, making it a safer and cheap way for mortgage companies and private banks to make money on home loans. The savings are passed on to you the buyer in the form of a lower interest rate.
Often times, the rate is lower than current conventional mortgage rates.
USDA Credit Scores
A major benefit of USDA loans in 2017 is flexible credit criteria. It is not necessary to have a good credit score to qualify for a USDA loan. Today, the minimum credit score to be approved is 640.
If you discover that your credit is not good enough for one lender, you should try several others.
USDA Closing Costs
USDA does allow the seller to pay for your closing costs; the limit is up to 3% of the sale price. Not every seller will agree to do so, but if you have a seller who needs to move his property, you might be able to get some of your closing costs covered.
Therefore, it is possible to get into a USDA loan, and your dream home, with little out of pocket costs!
If your seller will not cover your closing costs, you will need to pay them. You have to be able to prove that you have the cash to close the loan. This requires two months of bank statements.
Interestingly, there also is a requirement that the borrower NOT have the assets to put down 20% on the property. If you can qualify for a conventional loan, USDA will not allow you to get a loan with them. This program is designed for lower income, credit challenged people who cannot get a conventional loan.
As of 2017, borrowers must have a debt to income ratio of no more than 29% of gross income. This means that all housing debt payments – housing, taxes, insurance and HOA – cannot exceed 29% of gross income. Total debt payments cannot exceed 41%.
However, there are some cases – such as borrowers with higher income and good credit – who can qualify for higher DTI ratios.
USDA loans are an excellent 100% mortgage financing option for people buying homes in more rural areas. Check with your lender now to see if you can qualify.