Qualifications for USDA Loans
USDA guaranteed loans aren’t for everyone. They do have requirements for both the borrower and the property. Learning about the qualifications for USDA loans can help you decide if these home loans are a good fit for your needs.
Requirements for the Borrower
The USDA’s home loan program was conceived to support homeownership, so it’s no surprise that the requirements for borrowers who hope to use a USDA-backed loan aren’t onerous. As Nerdwallet indicates, the list is fairly short:
- Borrowers must be U.S. citizens or permanent residents.
- The monthly loan payment must be 29 percent or less of a borrower’s monthly income. Other monthly debt payments should not exceed 41 percent of their income. If their credit score is 680 or higher, the USDA may make an exception.
- Borrowers should be able to demonstrate a history of dependable income for at least 24 months.
- Borrowers should have an acceptable credit history. Those with credit scores of 640 or higher will enjoy streamlined processing. Those with lower scores may still be able to qualify if they can meet more stringent underwriting standards.
- Borrowers must also meet income limits set by the USDA. They cannot make more than 115 percent of the local median income. The income of everyone who lives in the household must be considered, but the cap is adjusted for the size of your household. To see what the figure would be for the county where you are planning to purchase a home, check out this USDA website.
Requirements for the Property
It’s not enough for the borrower to be qualified. The property must also meet the necessary requirements if you hope to secure a USDA guaranteed loan for your home purchase. As The Mortgage Reports explains, there are also certain qualifications for the property:
- The home must be your primary residence. USDA loans cannot be used for investment properties, second homes, vacation homes, or commercial properties.
- The home must be a single-family home. Duplexes or other multi-unit structures are not permitted.
- The home must be in an approved geographic area. Currently, some 97 percent of the U.S. is considered eligible for these loans. Although densely populated urban areas are excluded, many suburbs will be allowed to participate. To determine if a property is eligible, you can visit the USDA’s Property Eligibility website and type in the address.
How to Get a USDA Guaranteed Loan
Like many other government-backed loans, USDA guaranteed loans are made by private lenders. If you decide that one of these mortgages is the right tool to help you achieve your housing goals, then you’ll need to find a lender you trust who offers them. Smart Asset describes the basics process of securing a USDA guaranteed loan:
- Get preapproved for your USDA loan. Getting preapproved lets you know how much you can afford to spend and confirms to real estate agents and sellers that you’re a serious shopper.
- Shop for your dream home. Find a home that fits your needs. Check the USDA website to confirm that it is eligible for a USDA loan.
- Apply for your mortgage. Being approved will make this process easier, but there are still a few hurdles to deal with. Respond promptly to any requests for information to keep things moving along.
- Await final USDA approval. Your lender will send the application off for final review.
- Close on your new home. At closing, you’ll sign the documents that make the property yours, pay any closing costs that are owed, and take possession of the keys to your new home.
Do you have questions about USDA loans? Contact PrimeLending Dallas for user-friendly answers. We’re happy to help you reach your housing goals.