USDA Home Loan | USDA Eligibility
USDA home loans require household income guidelines and the home must be located in an eligible rural area defined by the USDA. The USDA home loan program is for moderate and low income applicants to obtain financing for eligible rural homes that are safe and sanitary helping with a borrower’s ability to repay. USDA loans allow financing of up to 100%, with no down payment
required, and are determined by a borrower’s ability to repay based on income, debts, and assets. Some mortgage companies may have tougher USDA guidelines than others due to overlays
USDA Property Eligibility
An eligible area is defined
by being a rural area that is an open country, place, village, city part of or associated with an urban area.
- A lot of the areas in the United States are eligible for a USDA loan and it not hard to look up if the area is eligible.
- Borrower’s are never allowed to borrower more than the area’s loan limit plus acceptable certain costs that can be financed.
- Borrowers can use the USDA property eligibility program link in order to determine if the property is located in eligible rural area.
- The USDA property eligibility tool is as easy as entering in an address and checking to see if the address is located or not located in an eligible area.
A Mortgage Loan Originator or realtor should be familiar with this tool and can help assist with determining if the property is an eligible rural area for a USDA home loan.
USDA Income Limits
The single family housing program link for USDA
home loans will determine if the income eligibility for an applicant and household is eligible for a USDA home loan.
- When using the USDA income eligibility tool, the following questions will be asked:
- What state is the property located in?
- What county is the property located in?
- May ask what metropolitan area the property is located in?
- Number of people in a household?
- Number of residents under the age of 18 year old that are disabled or full time students?
- Are the loan applicants or co-borrower 62 years or older?
- Are there any disabled persons living in the household?
- The tool will go on to ask about child care expenses, medical expenses, disability expenses, and income.
- After all these questions are answered, the USDA income eligibility tool will determine if an applicant is eligible or ineligible.
The USDA income tool does not mean that a borrower is guaranteed a USDA loan based on USDA income. The income still has to be looked over by a Loan Originator, which a preapproval letter
can be issued to shop for a home. Once a sales contracted has been executed by a realtor, the Loan Originator will submit the loan to underwriting and it has to be cleared by the underwriter.
Borrower Qualifications For USDA Home Loans
- Minimum credit score of 550 and max debt to income ratios per the Guaranteed Underwriting System (GUS).
- 550-580 credit score come with limitations.
- GUS is an Automated Underwriting System (AUS) that is used to receive findings
- To determine a borrower’s eligibility.
- The GUS underwriting recommendations are accept, refer, refer with caution, or ineligible.
USDA Grants Now Available
The USDA grant is a grant
that is 3% of the first mortgage loan amount, which was designed to increase homeownership opportunities for low to moderate income individuals and families. No repayment required on the USDA grant.
- Why would a borrower need a 3% grant if USDA loans are 100% financing?
- Some borrower’s may not be eligible for 100% financing or have enough for closing costs.
- The USDA home loan grant can be used for the down payment and/or closing costs.
- What is the borrower’s eligibility for a USDA home loan grant?
- Minimum FICO of 620.
- If a borrower has adequate funds and does not use the grant, they can have a lower FICO score.
- Occupy as a primary residences only.
- Non-occupant co-borrowers or cosigners are not allowed.
- 12 month housing history is required for the grant regardless of what the GUS finding are.
- One borrower must complete a homebuyer education course.
Bankruptcy And Foreclosure For A USDA Home Loan
- A chapter 7 bankruptcy must be more than 3 years out from the discharge date.
- A chapter 13 is eligible if there is 12 months satisfactory pay history and court permission to enter into a USDA home loan transaction, which requires extenuating circumstances.
- If there are no extenuating circumstances, than the chapter 13 bankruptcy must be discharged for 12 months.
- A foreclosure and short sale must be more than 3 years out from the date of the trustee’s deed.