The average American will move about 11 times over the course of their life.
Perhaps it’s your turn now. And you don’t just want to move into a new place — you want to buy one.
Purchasing a new home is a huge undertaking, and, if you’ve never done it before, then you probably have lots of questions. You should start by learning how to get a loan, as well as which type of mortgage is right for you.
Let’s start with the USDA loan. Could this be the right option for you? Read on to learn more about it and whether you have USDA eligibility.
What is a USDA Loan?
Some call it the USDA Loan. Others call it the Rural Development Loan.
USDA, of course, stands for the U.S. Department of Agriculture. That, combined with the nickname of “Rural Development Loan” tells you a lot about this lending scheme.
If you want to buy a home in an urban center, or even in the suburb of one, you won’t qualify for a USDA loan. Instead, you have to choose somewhere rural.
The USDA developed these loans to help underserved areas and promote homeownership in the people who live there. And with just this background information in mind, you can probably guess some of the stipulations that come with a USDA loan.
How is USDA Eligibility Determined?
Perhaps you want to buy a rural home or property. That doesn’t automatically qualify you for a USDA loan. Instead, you have to qualify in the following areas:
Location of Your Potential Home
This is the most stringent of all the USDA’s requirements for receiving a loan. You should first check if the property you want to buy falls within a USDA-covered area.
Luckily, they have an online tool for determining this. So, start there. If the town or even more remote location of your dream home falls within the USDA’s jurisdiction, then you have a good chance of qualifying for the loan.
Type of Property You Want
Next, you might not be able to use a USDA loan to buy the property you want.
There are two types of USDA loans: direct and guaranteed. The USDA funds the direct loans themselves, while guaranteed loans come from USDA-approved, third-party lenders.
These two avenues open up USDA loans to more borrowers than the government-run program would. The guaranteed loans are still insured by the USDA, which means those with low income or credit scores can still get approval from third-party lenders.
In general, though, both the direct and guaranteed USDA loans are only available for certain types of properties.
Beyond the location, as we mentioned before, your property will have to become your primary residence. There’s no value or price limit on the house you can buy, though.
On top of that, if you get a direct USDA loan, your abode has to meet these additional criteria:
- In most cases, it cannot be larger than 2,000 square feet.
- It cannot have an in-ground pool.
- The value of the home can’t exceed the USDA loan limit that applies to the area.
Your lender or the USDA can help you determine if a particular property meets all of these stipulations.
Income and Living Situation
There are lots of surprises when it comes to the USDA loan. One of them is the income requirement that comes with the loan.
To obtain a direct USDA loan, you have to show that you can’t get a loan from another lender. You also will have to show that you don’t have access to any other housing that’s safe, clean or otherwise fit for life.
Both direct and guaranteed borrowers have to meet the USDA’s income requirements, too. These vary by state, though, so you’ll have to check and see if you fall within the parameters.
Credit Rate and DTI
To get a USDA loan, you’ll typically need a credit score of 640 or higher.
Then, you need to calculate your debt-to-income ratio. This number compares your monthly income to your monthly debt payments. Keep this number under 45 percent for your best chance of qualifying.
Ways You’ll Use the Money
You might not need a loan to buy your rural home. Perhaps you need money to fix up the place once you have it.
You will still qualify for a USDA loan if you don’t want to use the funds for, say, a down payment. You will still get one, so long as you plan to buy, repair, build or relocate a rural property.
On top of that, you can use both guaranteed and direct funds to pay for your closing costs. You can also get a USDA loan to help refinance a qualifying property.
What Else Should I Know About USDA Loans?
We’ve only covered USDA loans for single-family homes. Check out the USDA’s website to learn more about the other types of properties for which you can get a loan. They include:
- Rural businesses
- Multi-family housing units
- Community facilities
- Water and environmental products
You can only have the option to decide between a direct or guaranteed USDA loan for single-family homes, though.
Beyond that, the USDA sweetens the deal by offering their loans with a $0 down payment from you. Direct loans come with low interest rates — three percent, as of December 2019.
Guaranteed loans have variable rates depending on the 30-year, 90-day rate, as set by Fannie Mae. This number plus one percent and rounded up by .25 percent on the day you lock in your loan will be the interest rate.
Should I Get a USDA Loan?
Now that you know if you have USDA eligibility, you’re probably wondering, should I get the loan?
Every buyer’s needs will be different, and some of the stipulations that come with a USDA loan might not fit your situation. However, if you think it could be the right move for you, then your next step should be calling us.
We can help you get the ball rolling on a USDA loan or any other mortgage to get you into your dream property. Contact us today to learn more.