The USDA Rural Development Single Family Housing Guaranteed Loan Program – or USDA Home Loan – is one of the most powerful mortgage options available for rural and suburban homebuyers. USDA loans come with significant benefits that provide homebuyers the opportunity to achieve loan terms that no other program can offer. Originally designed to rural Americans realize the dream of homeownership, the USDA mortgage now services a wide variety of locations, homes and properties through USDA approved lenders.
Of the many benefits, the most mentioned is the ability to obtain 100 percent financing. This means qualified borrowers can purchase the home of their dreams with no out-of-pocked cost.
Keep in mind that the USDA does not fund the mortgage loans. Rather, the program has partnered with selected lenders who will loan the money with a repayment guarantee from the USDA.
USDA Purchase Loan Features:
• No Down Payment Required. Borrowers who qualify for a USDA Rural Development home loan have the flexibility to pay nothing out of pocket for a down payment. Additionally, the USDA loan allows borrowers to use a gift or grant to go toward their mortgage.
• Competitive 30-year fixed interest rates.
• Flexible Credit Guidelines. Borrowers must still provide a credit history report; however, the flexible guidelines allows potential homeowners with spotty or bad credit to still qualify for a home loan.
• No Maximum Purchase Price. The USDA Rural Development program has no maximum purchase price limit. However, a lender will still determine the maximum amount of loan each applicant is eligible for based on ability to repay.
Who is eligible?
Any individual or family who plans to occupy a home located in an eligible rural area as their primary residence may qualify for a USDA Rural Development home loan.
USDA Income, Employment and Credit Eligibility
The USDA has two sides to their eligibility requirements − property eligibility and the borrowers financial and credit eligibility. As with most any mortgage loan, you must demonstrate your ability and willingness to repay the loan in monthly installments. Your credit history will be analyzed to determine whether you have a reasonable ability to meet repayment obligations as they become due. Additionally, you must show that you have steady and sufficient income that is enough to meet mortgage payments, as well as reserves each month.
The USDA Home Loan guarantee program is designed to help low-to-moderate income families. To ensure this, the USDA enacts income restrictions depending on the area you wish to purchase a home.
To determine your income eligibility, your loan underwriter will look at your gross income, income from any co-applicants, as well as any other adults who plan to live in the household. If your income exceeds the maximum mark, you may still make certain adjustments to your gross income that will help you qualify.
Having a steady job and income helps with the underwriting process. What if you have worked many jobs over the last few years? Or you are self-employed? In order to give a loan underwriter a clear picture of your income, you will need to submit copies of at least two years of IRS tax filings. If you are self-employed, three years of tax returns may be necessary to determine a good average income. If you currently work for an employer, you should provide copies of the last two months of pay stubs.
The USDA does not require a minimum employment history from a certain position to obtain a USDA loan; however, there is the requirement that a borrower should have a history of receiving stable income for two years. This means you should be able to show a lender two years of steady income through employment or by child support or contract income.
Acceptable forms of income include a base salary wage, overtime, commission, tips, contract work, bonuses, housing allowances and compensation from other adults living in the residence. If you are selfemployed, you must be able to provide two years of tax forms, showing stable employment in the same line of work.
Gaps in employment history exceeding 30-days must be addressed by an explanation letter, unless the income history is seasonal in nature. If you have less than two years of steady employment, you may still be eligible if you are new to the workforce, have recently returned to the workforce after an extended absence or have a strong likelihood of continuing in your current position.
Your credit history shows your past debt obligations to other creditors and whether you paid on time or late, or if you managed your credit within limits or extended your limitations. Any derogatory late payments, such as 30-days or more, will show on this credit history. Also, any bankruptcy, repossession, or foreclosure will also be revealed on the credit report.
If you know that you have made all past credit payments on time and have a good credit history then you are in good standing and your GSF underwriter will enjoy looking at a clean report. However, even if you have some spotty or derogatory credit issues listed, you still may be eligible for a loan.
USDA Loan Property Eligibility
In addition to USDA income limits, the USDA also maintains property requirements. This is to ensure that USDA Home Loans are used in areas that meet the United States Department of Agriculture’s definition of rural.
The USDA provides interested homebuyers an eligibility map to help with this process. GSF will help you determine if the are you are interested in purchasing a home is eligible for USDA financing.
USDA Property Requirements:
To ensure that your home is safe and your well−being is secure, the USDA requires the chosen home to be structurally sound, functionally adequate and be in good repair. If a home is in disrepair, the borrower can use funds to place the home in good repair