If you prefer to live in a rural area, you might be lucky enough to qualify for USDA financing. The USDA applicant eligibility requirements are fairly relaxed and enable low to moderate income families to qualify for flexible financing that is affordable. Aside from the home needing to be located within the rural boundaries, there are certain requirements that every applicant must meet.
The largest USDA applicant eligibility requirements center on personal and household income. Because the USDA program caters to families with lower incomes, it is no wonder that the program focuses on income so much. With most loan programs, the more you make the better off you are, but with this program, the less you make the more likely you are to qualify for the program.
Your income must be within the average median income for the county you plan to live in order to qualify, if you apply for the USDA Guaranteed Program. You can make up to 115% of the amount for your area.
Debt Ratio Requirements
Although the USDA program benefits those that have low to moderate income, there are still debt ratios that are in place that must be followed in order to qualify. In general, your principal, interest, real estate taxes, homeowners’’ insurance, and mortgage insurance payment should not exceed 29 percent of your adjusted income. In addition, your total debts, which include the above mortgage payment as well as any other monthly obligations, should not exceed 41 percent of your adjusted income. The exception to this rule is if your credit score exceeds 660, in which case the USDA and the lender may entertain a slightly higher debt ratio.
Credit Score Requirements
In general, the USDA would like credit scores that are above 620 in order to qualify. If your score is higher than this number, you would qualify for “streamline” processing, which means less scrutiny on your loan file. This does not mean if your credit score is below 620 that you will not qualify, though. If your score is between 580 and 620, you will have to abide by the standard underwriting guidelines and if your score is lower than 580, your file will be looked upon with extra scrutiny.
The good news is that if you do not have traditional credit, meaning you do not have a credit score, you can use non-traditional trade lines to qualify for the loan. This means using things like:
- Rent payments
- Utility payments
- Insurance payments
The lender will need to verify the timeliness of your payments in order to use non-traditional trade lines. For example, a landlord could verify your rent payments over the last year or the utility company could verify your timely utility payments.
In addition to your credit score, the lender will look over your credit history. You should not have any collections that originated in the last 12 months. You should also have no late payments during that time. If you do have a special circumstance that made it impossible to make your payments on time, such as a medical emergency and you can prove it, you might be able to get around these requirements.
Miscellaneous USDA Applicant Eligibility Requirements
In addition to all of the above, there are some miscellaneous USDA applicant eligibility requirements:
- You must be a USA citizen and be able to prove it
- You must not be able to secure financing from any other source including conventional financing
- Your income must fall within the range deemed appropriate for your area
If you are interested in a USDA loan and think you meet the USDA applicant eligibility requirements, you should find a lender that offers USDA loans. Not every lender is approved to provide this type of loans, so make sure you find one that offers them and is experienced in the process since it takes a little longer than other loan types.