Are you looking into USDA homes? Are you unsure if your area qualifies?
USDA property eligibility depends on whether you live in a rural area or a cosmopolitan area. The loan is for homeowners who live in suburban or rural areas. More importantly, your income must be low or moderate.
Under the USDA loan program, buyers don’t have to pay a down payment. For primary residences, the loan package entails a 30-year fixed-rate plan.
Further, the government doesn’t give USDA loans. Instead, the government will guarantee the loan to the lender. As a result, the lender will feel more comfortable approving an applicant backed by the USDA.
This article will help you determine if your area qualifies for a USDA loan. Read further to know more.
Above all, you must live in a rural area to be eligible for a USDA home loan. That said, the USDA has a flexible definition of a rural area.
The organization defines rural as an area with fewer than 35,000 residents. This criterion is the main stipulation that the USDA uses to determine area eligibility. Most rural communities throughout the nation fall into this category.
In fact, rural areas are almost always eligible. With that, some suburban areas may be eligible if your town has less than 35,000 people in it. Some suburban areas have isolated pockets and qualify for USDA financing.
On the other hand, the USDA excludes metropolitan regions because these areas always have more than 35,000 people. Additionally, cosmopolitan areas usually cannot accommodate farmland.
To be on the safe side, you can type in your address on the USDA website to see if your property is eligible.
Using the USDA Eligibility Map
To know if you qualify for certain, adhere to the following steps:
- Once you visit the eligibility website, click on ‘Single Family Housing Guaranteed.’ Then, click the ‘Accept’ button to proceed.
- In the upper-left corner, type in your search address, and click the ‘Go’ button.
- The map will reveal if your area is eligible for the program. You can also use the zoom tool to look at certain areas in greater depth.
The map will reveal areas shaded in light brown. These areas are the ineligible areas, whereas the unshaded areas are usually eligible.
You’ll find that the bigger cities within a state are shaded. The mapping tool also allows you to look at homes for sale in eligible areas.
Maximum Loan Value
USDA home loans don’t impose limits on what type of home you can buy. As long as you qualify, you can buy any home within an approved region.
The USDA will assess the maximum loan value based on your eligibility. Loan reps will assess your maximum loan value based on the following factors:
- Credit score
- Debt income ratio
- Mortgage or rental history
From there, the lender will establish a maximum parameter, and you can go shopping for your new home.
Even if you live in an eligible area, you may not qualify if you have a high income. Remember: a USDA home loan is designed to help homeowners of modest means.
Therefore, the USDA mandates that lenders don’t provide loans to high-income earners. Overall, the income limit breaks down as follows:
- 1-4 Member Household: $90,300
- 5-8 Member Household: $119,200
That said, the USDA will make exceptions for areas with high living costs.
If your area qualifies, you must assess the property. When it comes to homes, the property must be 2,000 sq. ft. or less. That said, the USDA will make exceptions for large families (i.e. five or more).
Also, the property must not have an in-ground swimming pool. However, the USDA will assess home with aboveground pools.
In terms of property values, the home cannot be more than the value of the loan amount.
The next step in the eligibility process is buyer qualification. The USDA will assess an applicant on the following criteria:
- Debt-to-Income Ratio: In most cases, you must have a DTI of 41% or less.
- Credit Requirements: You must have a credit score of at least 640 to qualify. However, the actual credit limit can depend on the lender’s standards.
- Income Requirements: You must have a steady income to qualify. Further, you must document your income via your income tax returns.
Further, the USDA excludes certain forms of income. For instance, loan officials disqualify any type of capital gains, insurance money, or inheritance money as official income sources. Additionally, officials will exclude any income from an earned income tax credit.
Overall, all household members cannot have an income that’s more than 115% of the median income of the area. Plus, the USDA won’t consider any income earned from a minor.
Also, income housing assistance (i.e. Section 8 payments) is usually disqualified. If any students live in the home, the government won’t acknowledge any income from an adult student who is a full-time student.
Moreover, the state won’t consider any income from anyone who doesn’t live in the house officially, such as a live-in nurse.
USDA Homes and Property Eligibility
When it comes to USDA homes, you should be more focused on property eligibility instead of area eligibility. Most of the United States is eligible for a USDA home loan.
Overall, property eligibility and financial profiles are the two main factors that determine the approval process. When it comes to financial histories, you must have a decent credit score and a suitable DTI to qualify.
Want to know more about USDA home loans. Click here to get the information you need.