Many people assume that USDA loans are for farmers, however, that’s not entirely true. USDA loans are for individuals that live in rural areas and many people who live in suburban neighborhoods think they don’t qualify for this type of loan. What people don’t realize is that many people are eligible for this loan, and they just don’t know it yet. A very large portion of the United States fall into these “rural” guidelines that are required by the USDA in order to use this financing option. You can check your house’s eligibility on the USDA website and you may even find your area is included.
No Down Payments
One of the biggest struggles when purchasing a new home is funding your down payment. Even with a conventional or FHA loan that offer low down payments of 3.5% it can be a hefty bill for some borrowers. Luckily, with a USDA home loan, a down payment is not required to qualify.
As long as your debt ratios fall into a range that the USDA allows, you will be able to finance the entire amount of the purchase price. The DTI ratio minimum that the USDA requires is 29% upfront (this includes your mortgage and all taxes, insurance, and fees) and 41% on the back end, which is any installment loans, credit card payments or student loans you may have. In some rare cases exceptions are granted for higher debt ratios in return for a higher credit score.
Low Credit Score Requirements
Many people have difficulty raising their credit scores to a level higher than good or excellent after they had a negative impact on their score. This has made it difficult for good people to buy a home and get financing for a mortgage, especially conventional mortgages. In order for a borrower to qualify for a USDA loan, they may have additional steps, but they can qualify with a lower credit score. Lenders typically want to see scores in the 620 or higher range to minimize their risk, but they will consider a credit score as low as 580 on a case by case basis. Usually borrowers with a credit score of 620 or higher have a smoother home loan process.
Low Income Requirements
Unlike the other loan programs, the USDA loan program is available to individuals and families who have a lower than average income. If you make too much money, you may not qualify for the program. You can find more information regarding income requirements for your specific area, on the USDA website. When taking your income into consideration, the USDA will allow various allowances to deduct off your gross income which will bring your income level down and your qualification up.
Some of the USDA allowances are:
- -$480 for any children under 18 years old
- -$480 for any children over 18 years old and considered full-time students
- -$480 for an relatives who have a disability that live with you
- -$400 for any elderly relatives that live with you
While you must include all your income from everyone in the household and any part-time, seasonal and commission based income the allowance will help bring your total amount down and make it easier to qualify.
USDA loans are often times overlooked, but it can be a great home loan option with easy qualifications and many lenders that are USDA qualified can offer these loans. Shop around to numerous lenders in order to find the right lender that has the options that most closely match your needs. You can start your lender search today, by clicking the link below. It’s quick and easy and it only takes a few minutes of your time. Fill out the necessary information and within minutes you’ll be matched with a qualified lender eager to help you with your USDA home loan.