What Are USDA Home Loan Programs And How Can I Qualify?
This BLOG On What Are USDA Home Loan Programs And How Can I Qualify Was UPDATED On December 19th, 2017
USDA Home Loan Programs are residential mortgage loans that are available in certain regions of the country which are made by private mortgage 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
- The Gustan Cho Team at USDA Mortgage is one of the largest and fastest growing direct mortgage lenders with no overlays on USDA Loans in the Midwest
A USDA home loan programs is a zero down payment mortgage for eligible rural and suburban home buyers. 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 an USDA area, visit http://eligibility.sc.egov.usda.gov.
- USDA Home Loans enable mortgage loan 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 the 102% of the purchase price
USDA Home Loans are an excellent mortgage loan tool for first time home buyers 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
- Maximum debt to income ratios allowed are 29%/41% which means that no more than 29% of the mortgage borrower’s monthly gross income can be in monthly principal, interest, tax, and insurance payments as well as other housing expenses such as hoa and USDA Loans guarantee annual fee
- USDA mortgage lenders do not want to see any 30 day late payments in the past 12 months and no overdrafts in the past twelve months
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 canceled checks and/or bank statements. Rental payments needs to have been timely in past 12 months with no late payments for VOR to be valid.
- Verification of Rent is proven by providing 12 months cancelled 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 requires an upfront mortgage insurance premium
- 2% USDA guarantee fee as well as an annual guarantee fee which is paid monthly along 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
With USDA Home Loan Programs, both the home buyer and property needs 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 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
Mortgage 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 trade lines can be substituted for less than 3 traditional credit tradelines.
Example of non traditional credit trade lines 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 over USDA Home Loans
There are many areas throughout the United States that a mortgage loan borrower 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 because USDA have a maximum back end debt to income ratios of 41% where with FHA Loans, the maximum back end debt to income ratios are 56.9%
- Other reasons why mortgage loan borrowers need to go with FHA Loans is because FHA Loans allow non occupied co-borrowers where on USDA Home Loans, all borrowers must be owner occupants of the subject property
Qualifying For USDA Home Loan Programs
Home Buyers needing to qualify for USDA Home Loans with a direct lender with no lender overlays can contact The Gustan Cho Team at USA Mortgage at 262-716-8151 or email us at email@example.com. We are direct lenders of USDA Loans with no overlays on government and conventional loans. We are available 7 days a week, evenings, weekends, and holidays.