USDA Home Loan Programs And Mortgage Guidelines

This Article Is About What Are USDA Home Loan Programs And How Can I Qualify

USDA Home Loan Programs are residential mortgage loans that are available in certain regions of the country which are made by private lenders and guaranteed by the USDA Guarantee Program.

USDA areas are not necessarily located in farm areas. Many suburbs of major cities are classified as USDA Rural Areas. The U.S. Department of Agriculture is in charge of USDA Loans and its Rural Development Loan Program. Most home buyers and real estate agents are not familiar with USDA and its loan programs. USDA Home Loan Programs are the least known government loan programs. Gustan Cho Associates is one of the largest and fastest-growing mortgage lenders licensed in multiple states with no overlays on USDA Loans.

In this article, we will discuss and cover The USDA Home Loan Programs And Mortgage Guidelines For 2021.

No Down Payment Required On USDA Loans

How Qualification requirements for USDA Loans

A USDA home loan program is a zero-down payment mortgage for eligible rural and suburban homebuyers. USDA loans are issued through the USDA home loan programs, also known as the USDA Rural Development Guaranteed Housing Loan Program, by the United States Department of Agriculture.

To see if a property is located in a USDA area, visit http://eligibility.sc.egov.usda.gov.

USDA Home Loans enable borrowers to finance 100% of their purchase price amount and no money down is required. There is a 2% USDA guarantee fee that can be added on top of the purchase price and loan amount. But the appraisal needs to come in at 102% of the purchase price.

USDA Home Loans are an excellent mortgage loan tool for first-time homebuyers but have stricter underwriting guidelines than FHA mortgage loans when it comes to debt to income ratios.

Qualification requirements for USDA Loans

Minimum credit scores are 580 FICO to qualify for USDA Loans. Home Buyers do need verifiable income and W2’s and tax returns for the past two years. The maximum debt to income ratio allowed is 29%/41%. This means that no more than 29% of the borrower’s monthly gross income can be in monthly principal, interest, tax, and insurance payments, as well as other housing expenses such as the HOA and the USDA guarantee annual fee. Lenders do not want to see any 30 day late payments in the past 12 months. No overdrafts in the past twelve months. It is alright to have had prior bad credit, outstanding collections, charged-off accounts, late payments. You just need timely payments in the past 12 months to get an approve/eligible per automated underwriting system.

Verification Of Rent

Verification Of Rent is very important and is used to show payment shock. Verification of rent is only valid if the renter has paid their rent payment with checks and/or bank transfer. 12 months rental verification is proven by providing 12 months of canceled checks and/or bank statements. Rental payments need to have been timely in the past 12 months with no late payments for VOR to be valid.

Verification of Rent is proven by providing 12 months of canceled checks or a letter from a property management company if the borrower is paying a licensed registered property management company. Like FHA Loans, USDA Loans require an upfront mortgage insurance premium. 2% USDA guarantee fee as well as an annual guarantee fee which is paid monthly along with their monthly mortgage payment. The annual USDA fee is 040% of the mortgage loan amount.

For FHA Loans, the upfront mortgage insurance premium is 1.75% and the annual FHA insurance fee is 0.85%.

USDA Loans: Property Eligibility Requirements

What are Property Eligibility Requirements

With USDA Home Loan Programs, both the home buyer and property need to qualify. Qualifying properties need to be located in a USDA designated area. Properties with in-ground pools can qualify for USDA Loans. However, the value of the pool cannot be used as part of the overall value of the subject property in determining the value. The appraiser needs to provide an as-in value for the subject property and cannot give a positive adjustment for the value of the pool.

Credit Tradelines Guidelines On USDA Home Loan Programs

Lenders can have lender overlays on USDA Loans. Many will require three minimum credit trade lines with at least a 12 months payment history is required.  Certain non-traditional credit tradelines can be substituted for less than 3 traditional credit trade lines.

Examples of non-traditional credit tradelines are the following:

  • Rental verification
  • Cell phone and utilities
  • Insurance payments
  • Retail store payments

All of the above non-traditional credit trade lines cannot have late payments in the prior 12 months.

Why FHA Loans Versus USDA Home Loan Programs

There are many areas throughout the United States borrowers can qualify for USDA Home Loans. But they a large percentage of those borrowers need to go with FHA Loans because they will not qualify for USDA Home Loans. The majority of the reasons they do not qualify for USDA Loans is. This is because USDA has a maximum back-end debt to income ratio of 41%. With FHA Loans, the maximum back-end debt-to-income ratios are 56.9%. Another reason why mortgage loan borrowers need to go with FHA Loans is that FHA Loans allow non-occupied co-borrowers. With USDA Home Loans, all borrowers must be owner-occupants of the subject property.

Qualifying For USDA Home Loan Programs

Why FHA Loans over USDA Home Loans

Home Buyers needing to qualify for USDA Home Loans with a mortgage company licensed in multiple states with no lender overlays can contact us at Gustan Cho Associates 262-716-8151 or text us for a faster response. Or email us at [email protected] Gustan Cho Associates is a mortgage company licensed in multiple states and are experts on USDA Loans. Gustan Cho Associates has a national reputation for not having any lender overlays on government and conventional loans. The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays.

Leave a comment