USDA Loan Guidelines For Home Buyers In Rural Areas
This BLOG On USDA Loan Guidelines For Home Buyers In Rural Areas Was PUBLISHED On July 1st, 2019
USDA Loan Guidelines:
- The United States Department of Agriculture has a guaranteed mortgage loan program that it sponsors
- USDA loans are residential mortgage loans that are commonly also known as the USDA Rural Development Guaranteed Housing Loan Program
- It is also known as the Section 502 loan which is named after the USDA charter
- Rural Housing Loans, USDA loans, do have specific USDA guidelines and borrowers need to qualify under USDA lending guidelines
- The property must be in rural areas throughout the country that has been designated and classified rural areas by the U.S. Department of Agriculture
- Although USDA loans are for rural areas, there are also thousands of smaller suburban areas throughout the country that also qualify for USDA loan programs
In this blog, we will cover USDA Loan Guidelines For Home Buyers In Rural Areas.
USDA Loan Guidelines And Requirements
USDA loans are extremely popular and sought after by many home buyers due to the USDA loan program’s unique no money down payment and low mortgage rate features. You can purchase a home in a rural area with no money down and no closing costs with a USDA loan.
USDA is not a mortgage lender and does not originate nor fund USDA loans.
- A USDA approved lender will originate and fund the mortgage
- The United States Department of Agriculture, USDA, will guarantee the USDA approved lender in the event if the loan defaults against loss
- Since the USDA lender is guaranteed the loss against loss on the USDA loan, the risk to the lender is minimal
- With low-risk means, low rates and that is how a home buyer can not just enjoy the perks of 100% financing but also extremely low mortgage rates
- Typically, mortgage rates on USDA loans are much lower than any other mortgage loan program including Conventional, FHA, and VA loans
USDA Loan Guidelines On Mortgage Insurance
USDA loans require both upfront mortgage insurance premium as well as annual mortgage insurance premium.
- The upfront and annual USDA mortgage insurance premium has last been updated and remains unchanged as of today
- USDA loan upfront mortgage insurance premium is 2.0% which can be rolled into the balance of the USDA loan
- There is also a 0.40% annual mortgage insurance premium that needs to be paid every year
USDA Loan Guidelines On USDA Loan Limits
To be eligible for a USDA loan, the property needs to be in a designated region and the home buyer needs to meet USDA mortgage guidelines.
As mentioned above, USDA allows a home buyer to get a USDA loan with 100% financing:
- The upfront mortgage insurance premium can be added to the balance of the USDA loan
- Closing costs can be avoided by getting a sellers concession towards a home buyer’s closing costs or by a lender’s credit
- One of the setbacks with USDA loan programs is that the household income of the home buyer cannot exceed the maximum income limits of a particular area that the property is located
- USDA mission and goal is just to promote homeownership for home buyers with modest income and means and not those who have higher incomes
- To meet USDA loan income guidelines, the buyer’s household annual income cannot exceed the median household income for that particular region
- Or county by more than 15% with allowances adjusted for the size of the home buyer’s household
- The more members a household has, the more income is allowed
For example, the income threshold for a 10 member household is much higher than those of a 3 member household.
Here are the maximum USDA loan income limits for 2019:
The USDA will not guarantee a mortgage for a household which exceeds its maximum income limits for a given area. This is because the USDA program’s purpose is helping those with “modest means” achieve homeownership. To be eligible for the USDA financing, then, the agency states that a household’s annual earnings must not exceed the median household income for the area by more than 15 percent, with an allowance for the size of your household. For example, the USDA Income Limits for an 8-member household is higher than the USDA income limit for a 4-member household; just as the income limit for a 10-member household will be higher than the income limit for an 8-member household.
USDA income limits have a floor, based on household size:
Note that USDA income limits vary by area, though. In San Francisco, California, where the cost of living is among the highest in the nation, the 2019 USDA income limits for a 1-4 member household is $209,150, and $276,100 for a household of eight.
USDA income limits in Raleigh, North Carolina start at $96,950.
Households of more than 8 members can add eight percent for each additional member to their 1-4 member household USDA income limit.
- Households with one to four members in households are $82,700
- Households for five to eight member households is $109,150
The income limits for USDA loan income calculations are different depending on the state and the regions. High-cost areas such as California where it is one of the most expensive areas and has a high cost of living. An average of 8% to each household member can be used as a standard adjustment income increase for households greater than 4 members in their household.