The USDA home loan, offered by the U.S Department of Agriculture through its Rural Development Program, is one of the most affordable options in the mortgage industry. The loan requires minimal funding upfront, making it an ideal choice for those who have limited resources. Factors such as property location, household income, credit history, and other requirements deemed necessary by the lender are some of the factors that affect USDA loan eligibility.
The U.S Department sponsored the RD Loan to increase the rate of homeownership in the less-dense areas of the country. That said, the program only covers properties outside major cities, or what the USDA qualifies as “rural,” but don’t be misled. Contrary to common belief, the scope of the loan is not limited to typical rural and countryside locations far-removed from city centers. The USDA eligible area map embraces suburban communities and small cities with a population of not over 20,000.
The USDA loan boasts of cost-effective advantages such as zero-down payment, low insurance rate, low-interest rate, and flexible terms. As appealing as those may sound, mortgages guaranteed by the USDA are not for everyone. The rural development eligibility is structured for households and individuals who are in dire need of safe and decent accommodation.
USDA Mortgage Requirements
- The home must be in a USDA-eligible location which can be accessed through the USDA website. Towns and small cities not more than 20,000 residents qualify for the loan, but some bigger cities and suburbs may be eligible for USDA financing.
- The property must pass the appraisal process that determines how much it is worth and if it is worthy of the investment. The assessment verifies whether the home adheres to safety and livability guidelines, including the minimum property requirements of the HUD.
- With the USDA mortgage, borrowers may only purchase single-family residences. Moreover, it must be occupied as the primary residence of the borrower.
The borrower qualifications are almost the same as any other loan program. The mortgage lender looks at the applicant’s income, credit, and financial information above all others.
- The borrower should be a citizen or a permanent resident of the United States with stable employment of not less than three years in the same company.
- Another requirement is an acceptable credit history. In cases where the applicant has a limited or non-existent credit record, the mortgage company may accept non-traditional credit references such as utility bills as proof of timely payments.
- Guaranteed loans are only for those whose incomes are lower than 115% of the AMI. Interested applicants who earn above this threshold may try for other low-cost, government-insured mortgages like the FHA loan.
- The debt-to-income ratio is currently set at 29/41. This means that the cost of the loan must not exceed 29% of your gross earnings. Also, your total debt should take only 14% of your monthly income, before taxes.
- While there is technically no credit score requirement, streamlined approval demands for a FICO score of at least 640.
Are you qualified?
There are plenty of mortgage lenders across the country catering to applicants of USDA guaranteed loan. Check with them to know more about the loan and your chances of getting approved.