USDA loans

USDA Loans are mortgages backed by the U.S. Department of Agriculture as part of its USDA Rural Development Guaranteed Housing Loan program. To qualify for a USDA Loan, the home being purchased must be in an eligible rural area as defined by USDA.  These loans do not require a down payment or monthly mortgage insurance and generally feature competitive interest rates.  USDA loans are only available for low- to moderate-income households. To be eligible for a USDA loan, your income must not exceed 115% of the median household income in your area. You can check USDA Loan income limits here.

USDA Loan Eligibility. 

Any US Citizen or legal resident can apply for a USDA Loan — whether buying for the first time or a subsequent home – if it is your primary residence.  All applicants must meet certain loan requirements, including:

• Proof of Verifiable Income and Employment History.  Applicants must be able to prove sufficient income to support the proposed house payment and other qualifying debt (see DTI requirements below).  In most cases, a two-year history of employment is also required.  There are a few instances where the two-year employment requirement is not needed (such as an individual who just graduated from school, a retiree or someone whose income is derived from disability).
• A Minimum Credit Score of 620.  The USDA loan has no minimum credit score requirement; however, most lenders require a credit score of at least 620.  If you have a lower score or limited credit history, you may still qualify. Check with us to learn more about these limits.
• Down Payment Requirement.  The USDA loan is 100% financing.  In other words, there is no down payment amount required.
• Debt-to-Income Ratio (DTI) Requirement.  The maximum allowable DTI for a USDA Loan is 41%.  Remember, your DTI is calculated by totaling the minimum payments on all your recurring monthly debts (student loans, credit card and installment payments, as well as your new proposed house payment), divided by your monthly gross income – expressed as a percentage. For example, if your new house payment is $1,800 per month, your car payment is $529 per month, and your minimum monthly credit card payment is $315, your total monthly debt is $2,644. If your gross income is $6,000 per month, then your DTI is roughly 44% (2,644 ÷ 6,000 = 44.06).
• Mortgage Insurance Requirement.  There is no mortgage insurance requirement for USDA Loans; however, there is an upfront Guarantee Fee equal to 1% of the loan amount and an annual fee equal to 0.35% of the loan amount that will be added to your monthly payment.  The Upfront Guarantee fee is usually added to the initial loan amount or can be paid at closing; while the annual fee is usually financed into your loan and paid monthly for the life of the loan.
• Eligible Properties.  Eligible USDA properties are single-family, primary residences located in designated rural or in some cases, suburban areas. You can locate USDA eligible areas by searching the USDA loan eligibility map. There is no maximum purchase price or acreage limit, however all residences must meet HUD’s minimum requirements.

Applying for an USDA Loan 

It’s easy. To get started, you will want to gather the following (that applies to you):

1. Proof of citizenship.
2. Proof of income and employment (pay stubs, tax returns, W-2 statements, retirement statements Social Security statements, child support and alimony documentation etc.)
3. Documentation of financial assets (bank statements, 401k statement, document of income from investments, etc.)
4. Most recent two Residential history (Name and Contact information for current landlord, etc.)
5. Identity information such as your unexpired Driver’s License and Social Security card.

If you have questions and would like to speak to someone, give us a call at 832.946.8400.