USDA Loans are the only other mortgage loan program that a home buyer can purchase a home with no money down and offers 100% financing. The other such mortgage loan program where no money down is required are VA Loans but you need to be a veteran to qualify for a zero down payment VA loan. There are qualification requirements for USDA Loans and not every property nor mortgage loan borrower will qualify for USDA Loans. There are certain USDA Loan mortgage lending guidelines to qualify for USDA Loans.
Requirements For USDA Loans
Below are the eligibility requirements for a home buyer to qualify for USDA Loans.
- Your household income and your monthly expenses need to meet USDA mortgage lending guidelines. Standard debt-to-income ratios are 29 front end debt to income ratios and the back end debt to income ratios are capped at 41%. This is much lower than FHA’s 46.9% front end debt to income ratio caps and 56.9% back end debt to income ratio caps.
- Minimum credit scores of 580 FICO is required for zero down payment USDA loans. Under 580 FICO scores are permitted but any federal loans under 580 FICO scores require 10% down payment.
The debt to income ratios can be exceeded as long as the USDA mortgage loan applicant has compensating factors. Even though a home buyer can qualify for a USDA loan with a 580 FICO credit score, many USDA mortgage lenders have credit score overlays. Most USDA mortgage lenders like to see a 620 FICO scores. USDA loan mortgage applicants can have household incomes of up to 115% of the household income for the area.
What Types Of Homes Are Eligible For USDA Loans?
All USDA Loan programs require that the home buyer need to be an owner occupant of the subject property to qualify for a USDA loan. The type of properties that qualify for USDA loans are single family homes, condominiums, planned unit developments, and prefab/manuafactured homes. The subject property needs to be located in an approved rural development area designated and approved by USDA Rural Development. The property must be located in an approved rural area, as defined by the USDA.