USDA Home Loans
USDA home loans offer excellent opportunities for families or individuals to purchase a home. The USDA home loan program offers tons of distinct advantages that you won’t find in an FHA loan or traditional mortgage program. A few of these advantages include low monthly mortgage insurance, 100% financing, no asset or reserve requirement, and absolutely no money down. That’s right, the USDA home loan program is one of the only remaining mortgage programs in the country that require absolutely no down payment for the purchase of a home. Better yet, the USDA home loan program allows for closing costs to be either paid by the seller in full, or permitted to be accumulated or “rolled into” the total amount of the loan. This allows you to need very little money upfront to buy your home.
USDA Home Loan Requirements
There are several USDA Home Loan requirements that you must meet in order to qualify for a USDA home loan. First of all, your home must be in a designated USDA rural area. While this does pertain to farmland, and open rural country, these are not the only areas that may qualify. In case of a home loan, a USDA designated rural area is an area with a population of less than 10,000 residents, sometime as much as 25,000 residents, depending on the state. Farming related businesses are considered rural if they are located in a municipality with a population of under 50,000 residents.
Because USDA home loans are designed to assist moderate to low income buyers, there are a few financial requirements that must be met in order to qualify for a USDA loan. The first thing the USDA will look at is your annual and gross monthly income. In order to qualify, you monthly housing costs must meet a specified percentage of your gross monthly income, typically up to 29% of your gross monthly income may be used towards your new home payment. You must also be able to demonstrate that you have a steady and reliable source of income, and that you can afford to make monthly mortgage payments, as well as pay any excess debt you may currently have. You must also have a credit score of 640 or higher, with no outstanding bankruptcies or foreclosures in the past two to three years.
For guaranteed USDA home loans, your annual household income must not exceed 115% of the annual median income for that area. This means if your total household income is above the average median income for that area, you may not be able to qualify. However, there are special deductions in place, such as childcare expenses, caring for elderly family members, or children in college, that can help to reduce your overall annual income. And lastly, the borrower’s total housing and other consumer credit payments should account for no more than 41% of the total borrower’s income.