USDA loans are often thought of as farmers’ loans. People consider them only when they think about purchasing a farm or an area with a lot of land. This, however, is not what the loan is for – it is for homes that are located within a rural area. Understanding not only where rural areas lie, but what areas are considered a USDA eligible rural area can help you determine if you could apply for a USDA loan.
Finding a USDA Eligible Rural Area
Aside from qualifying for the loan personally, you must find a property that is located within the USDA eligible rural area. This is not as hard as you think, though. Rural homes are not located way out in the middle of nowhere like we all think of rural areas. Instead, they could be within a much closer proximity to you than you think.
In order to find an eligible area, you can use the USDA map, located here. On this map, you have two options:
- Enter a property address that you want to purchase to determine if it is within rural boundaries
- Search an entire area by using the map and its color coded areas that designate the rural areas
If you choose to use the map, make sure you zoom in carefully to the area you wish to purchase a home. One town could be split up into several zones, including those that are USDA eligible and those that are not. If you enter a specific address into the system, however, you get a clear cut answer whether the home is rural or not.
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The Next Step After you Find an Area
Finding an area to purchase a USDA eligible home is just the first step. The next step is to determine if your income allow you to be a candidate for USDA financing. If you make too much money, you might not qualify for the program since it is meant to help those that have limited resources that might make it difficult to purchase a home.
Once you find an area you would like to move to, check out the maximum amount of allowed income for the area. You can determine the amounts by visiting the USDA income eligibility map. You start the search by choosing your state and then your county. After you enter that information, the system asks you some personal information regarding your family. You will need to answer questions that include:
- The size of your family
- The number of children under the age of 18 in your household
- The number of full-time students in your household
- The number of disabled family members living with you
- Whether or not either of the applicants are over the age of 62
Once you answer those questions, you input your exact household monthly income. You will need to break it down by base income, overtime, bonus, commission, self-employment and net rental income. You enter it for yourself (the applicant) first and then any other household members.
Once you finish entering all of the income, the system will let you know whether you are eligible for USDA Guaranteed Rural Housing and/or Direct Rural Housing. It will also break down the figures for you so that you can see the total adjustments your family receives as well as the total qualifying income they use. If you are eligible for the program, you can move forward with the application process with an approved USDA lender.
USDA Allowances
When the system computes your eligibility, they take into consideration all of the answers you provided to their questions. A few of these questions have a direct impact on the allowances the USDA provides you, which means money you get to subtract from your monthly income. The allowances are as follows:
- Any child under the age of 18 that lives with you gives you a $480 deduction on your income
- Any disabled person that lives with you also provides you with a $480 deduction
- Any children over the age of 18 that live with you that are full-time students provide you with a $480 deduction
- Any elderly relatives that live with you provide you with a $400 deduction
For example, if you have 2 children under the age of 18, one student over the age of 18 and one elderly parent living with you, the USDA will deduct $1840 from your gross monthly income. This way even if your monthly income is too high for USDA standards, but it qualifies with the allowances, you are eligible to receive USDA funding.
There are many variables that factor into whether you can receive USDA funding, but they work out to be favorable in the end. If you find a USDA eligible rural area and your income qualifies for that area, you could have very a very affordable financing option at your fingertips. You could even shop around with several USDA lenders to find the loan that is right for you so that you have the lowest closing costs and the best interest rate available on the market.
