USDA Guarantee Loan Program
USDA Loans 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.
To see if a property is located in an USDA area, visit http://eligibility.sc.egov.usda.gov.
USDA 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 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. You 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
12 months rental verification is required. 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 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 1.35%.
USDA Loans: Property Eligibility Requirements
Properties with inground 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.
Three minimum credit trade lines with at least a 12 month 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:
1. Rental verification.
2. Cell phone and utitlities.
3. insurance payments.
4. 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 Loans
There are many areas throughout the United States that a mortgage loan borrower can qualify for USDA Loans but they a large percentage of those borrowers need to go with FHA Loans because they will not qualify for USDA 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 Loans, all borrowers must be owner occupants of the subject property.