USDA loan questions

USDA home buyers standing in front of their new homeHow do I apply for a USDA guaranteed loan?

The Department of Agriculture works with approved mortgage companies and banks to originate USDA home loans. USDA home loan lenders

How do you qualify for a USDA loan?

Qualifying for the USDA rural housing loan program is similar to other mortgage programs. Applicants must have a two year work history, reasonably good credit, and meet the income limits.

  • Agree to personally occupy the dwelling as their primary residence
  • Be a U.S. Citizen, U.S. non-citizen national or Qualified Alien
  • Have not been suspended or debarred from participation in federal programs
  • Have the legal capacity to incur the loan obligation
  • Purchase a property that meets all program criteria

How long does the USDA loan take?

The USDA loans doesn't take any longer than any other home loan. A well prepared borrower and a house that does not have any appraisal issues can close within 30 days, however, allow 60 days to process the loan to be on the safe side. See applying for a loan

How much are the USDA loan closing costs?

Closing costs vary from state to state. However, the USDA closing costs are no greater than most other home loans. In fact, the upfront mortgage insurance premium is less than the FHA the upfront mortgage insurance premium. USDA loan calculator & payment estimate

What are the USDA credit score requirements?

THE USDA "desires" a credit score of 640 or higher when the mortgage application is manually underwritten (scored), however, the loan application most likely will be initially evaluated by a software program designed to evaluate credit risk. The loan evaluation program is known as automated underwriting (Read more about automated underwriting). The USDA loan application with credit score below 640 may still be approved, because the loan software takes into consideration not only the credit score, but, the monthly income, debt to income ratio and other proprietary metrics. The following is straight out of the USDA manual. Again, the referenced scores are intended for "manual" underwriting". The USDA also provides for compensating considerations for low credit scores due to unforeseen circumstances (Read more at Can you get a mortgage with bad credit?).

Credit score over 680
Perform a basic level of underwriting to confirm the
applicant has an acceptable credit reputation. Perform additional analysis if the
applicant’s credit history has indicators of unacceptable credit as noted in Paragraph 10.7 of this Chapter.

Credit score 679 to 640
Perform a comprehensive level of underwriting.
Underwrite all aspects of the applicant’s credit history to establish the applicant has an acceptable credit reputation. Credit scores in this range indicate the applicant’s reputation is uncertain and will require a thorough analysis by the underwriter of the credit to draw a logical conclusion about the applicant’s commitment to making payments on the new mortgage obligation. The applicant’s credit history should demonstrate his or her past willingness and ability to meet credit obligations.

Credit score less than 640
Perform a cautious level of underwriting. Perform a detailed review of all aspects of the applicant’s credit history to establish the applicant’s willingness to repay and ability to manage obligations as agreed. Unless there are extenuating circumstances documented in accordance with this Chapter, a credit score in this range is generally viewed as a strong indication that the applicant does not have an  acceptable credit reputation.

Little or no credit history:
The lack of credit history on the credit report may be mitigated if the applicant can document a willingness to pay recurring debts through other acceptable means such as third party verifications or cancelled checks. Due to impartiality issues, third party verifications from relatives of household members are not permissible. Lenders can develop a Non-Traditional Credit Report for applicants who do not have a credit score in accordance with Paragraph 10.6 of this Chapter. SOURCE: USDA manual

What homes are eligible for USDA loans?

Homes must be located in a targeted rural area. Many people think that the USDA home loan is only available for very remote areas. But, it's not uncommon to find homes that are eligible for a USDA loan just outside a suburban area. USDA home loan map

What is the USDA loan limit

The USDA loan program does not have loan limits like other home loans. The maximum loan is determined by the applicant's debt to income calculation. Estimate your debt to income ratio

Who is eligible for a USDA home loan?

Home buyers must be able to occupy the house after settlement, be a citizen(s) of the United States or have permanent residency. Co-borrowers (cosigners) who will not occupy the house are not permitted. In most cases, borrowers are required to sell their current home prior to closing on a USDA mortgage, if applicable.

Applicants must have adequate and dependable income. Prospective homebuyers are required to meet the income guidelines for the USDA loan. Annual income cannot be greater than 115% of the median income for the area, however, the USDA provides adjustments to income that exceed the limits (i.e. family size, childcare expenses for children age 12 or younger, etc.).

The applicant(s) should have a 24 month work history or adequate and dependable income. Qualifying income includes salary, hourly wages, documented tip income, re-occurring bonus, consistent overtime, alimony, and child support, etc.) received by the applicant and co-applicant(s)

The monthly debt (i.e. credit cards, installment loans, school loans, etc.) should not exceed 41% of the applicant(s) gross monthly income. The proposed mortgage payment with taxes and insurance is also included in the debt calculation. The monthly mortgage payment should not exceed 29% of the monthly income. The qualifying ratios are called debt to income. It should ne noted that the USDA permits some flexibility with the debt to income ratio with compensating factors, such as, good credit score, stable employment with the potential for increased earnings, and the ability to save.

Applicants may apply for a USDA home loan who do not have a credit score, however, the lender will attempt to determine an applicants’ credit worthiness with a 12 month history of rental or housing payments, utility payments, insurance payments, or payments to a retail store. The typical verification is made with cancelled checks or receipts.