WHAT IS A USDA LOAN?

A USDA home loan is a competitively priced mortgage option that helps to make purchasing a home more affordable for low-income individuals living in designated rural areas. The U.S. Department of Agriculture backs USDA loans in the same way the Department of Veterans Affairs backs VA loans for eligible individuals such as veterans and their families.

This government backing means compared to conventional loans, mortgage lenders can offer lower interest rates in many cases. If you qualify, you can buy a home with no down payment, although you will still need to pay closing costs.

There are property eligibility requirements with USDA loans. All properties must be in a USDA eligible area. To check if your property is in a USDA eligible area, CLICK HERE..


USDA LOAN REQUIREMENTS

There are certain requirements all borrowers must meet in order to obtain a USDA mortgage. These are the most common:

The property must meet HUD guidelines and meet all minimum property standards.
The home must be a pirmary residence which means it cannot be an investment or second home.
You must occupy the home within 60 days of closing.
Verifiable Income. Self Employed requires 2 years of tax returns.
Must have no defaulted government debts including tax liens and student loans.

There are a few more specific conditions to qualify for a USDA mortgage including credit score, loan limits, major derogatory credit and income requirements. Those are discussed in more detail below.


USDA DOWN PAYMENTS

USDA doesn't require a down payment in most cases depending on qualification.

Min credit score is a 580 but there are also certain credit requirements that are required regardless of credit score in most cases.

*minimum credit score subject to change at any time


Credit, DTI (debt to income) and Income

There are many factors that are considered when applying for a USDA mortgage regarding credit. The following items are also considered to qualify for a USDA loan:

Chapter 7 Bankruptcy must be discharged 2+ years. Chapter 13 can qualify while still in plan but must be at least 12 months and show all payments made on time. Court approval for a USDA loan is also required.
No major derogatory filed within 24 months. This includes charge offs, collections, repos, etc. This does NOT include medical.
No late payments on installment or mortgage debt within 12 months and no more than 2 times 30 day late within 24 months.
Revolving accounts will allow up to three 30 day late payments within 24 months. Cannot have any 60 or 90 day late on revolving accounts.
Rental payment history cannot have any 30 day late or more in the last 12 months.

Debt to income is typically limited to a housing rate of 29% and overal ratio of 41%. However, depending on credit score or compensating factors, ratios could go higher in some cases. Compensating factors are reserves, residual income and minimal increase and housing/rental payment.

USDA loans are for low to moderate income and must meet the income quidesline set out by HUD depending on the state and county you reside in. To check your income limits in your state, please CLICK HERE.


Pros and Cons of USDA loans

USDA can be a great loan for many borrowers including first-time homebuyers. Here we will list some of the Pros and Cons of obtaining a USDA loan.

PROS

Lower Credit Scores
Zero down payment options
Lenient Credit Requirements
Better Interest Rates
Guarantee Fee lower than MI

CONS

Monthly Guarantee Fee Required
Property Eligibile Requirements
Restrictive Income Limits


As you can see, USDA loans are a great option for many borrowers. If you would like more information, please call me at 352-446-9422 or email me at rick.scherer@cardinalfinancial.com. If you would like to get pre-approved, you can apply now:

APPLY NOW