Every loan has a perfect candidate, especially those loans that are backed by the government. The USDA rural development loan is among those that the government backs up and is geared towards a certain group of people. The USDA loan was originally started to build up development in rural areas. In recent years it has become one of the hidden gems in the mortgage industry as it still allows for loans of this type in areas that technically are not rural, but the USDA is still considering them as such. Just like any other loan; however, there are those that will not qualify for this loan.
Income: Too Much or Too Little
There is such a thing as too much and too little income. The USDA Rural Development Loan is geared towards those that do not have a large amount of income; specifically those that live in rural areas and have lower capabilities of making a large income. But that does not mean that just anyone will be rewarded with this type of loan just based on where they live; you also need to have enough income to cover your bills. In general, the USDA does not accept debt-to-income ratios over 41 percent – this includes all of your monthly bills as well as your mortgage payment. There are some exceptions to the rule, especially if there are compensating factors in place to make up for a higher debt ratio.
As much as the USDA is concerned with your debt ratio to make sure that you can afford the loan, they do not offer these loans to those that make too much money. This is figured based on the cost of living in your area. Each area, typically broken up by counties, has a median income. That figure is used to determine who is eligible for a USDA loan. If your income is higher than the median income for your area, it cannot be more than 115 percent higher. If you make 15 percent more than the median, then you will have to opt for another type of loan, such as an FHA or conventional loan where the more income you make, the more likely it is that you will get approved.
Where do you Work?
The USDA Rural Development Loan is similar to any other loan in that they require you to have a 2-year employment history. The USDA is a little more lenient when it comes to job changes within that period; however, the income needs to be consistent over that 2-year period. This could mean that you change jobs within the same industry, yet your income remains stable. What they do not want to see is erratic income that comes and goes over a period of time. If there is a gap in your income earning during the last 2 years, you will need to address the reasons and how they were resolved. Income of any type is typically acceptable for this type of loan including overtime, seasonal income, commissions and even child support if you choose to disclose it.
How’s your Credit?
The USDA loan is one of the only loans that does not have a minimum credit score in order to be eligible for their loan. This is good news for those borrowers that have a spotty credit history yet have cleaned up their act over the last year. If you are able to show an improvement in your credit history, the credit score itself can be overlooked. Lenders want to see that you are responsible with your credit lines, that you pay your bills on time and that you do not overextend yourself. If your credit score is lower than what is considered “good” yet you are able to show responsibility over the last 12 months, you will have a better chance at getting a USDA loan. If you have late payments, at least one year has to have passed in order for them not to count. The same is true for any other derogatory credit. The only exception is a bankruptcy – if you filed, it must be discharged for at least 2 years before you can apply.
The USDA Rural Development Loan is a loan that is great for first-time homebuyers as well as those that are purchasing in a rural area. The loan is meant to build up areas that would otherwise remain untouched by potential homeowners by providing lucrative financing terms that include no down payment and a low interest rate. The USDA makes the loans easy to obtain and affordable to maintain for the next 30 years. If you are in a rural area and are considering purchasing a new home, the USDA loan is one of the easiest loans to obtain.