USDA Loans

Who Qualifies for Home Loans in Rural Areas?

USDA loans are insured and issued by the U.S. Department of Agriculture, and given under the single-family housing guaranteed loans category. Various local and national banks, and mortgage lenders are great sources for USDA home loans. They are a type of agency loan for those in the industry.

For those who have a low-to-moderate income, these loans are designed to provide to offer better and more flexible rates of interest. Although they are for rural areas only, certain suburban areas are also covered, as the USDA has a wider definition of rural. Since these loans are backed and insured by the government, lenders have a lower risk of default.

Requirements to get USDA loan approval

As with any other loan, there are certain requirements and criteria that the applicant needs to fulfill to get the loan approved:
• Location
To get a USDA home loan approved, the location of the house to be bought must be in either rural or suburban areas in the USA. The house chosen must be the primary residency of the buyer. To check if the house is eligible for a loan or not, check the USDA's eligibility list, by typing-in the home's address.

• Credit score

A credit score is one of the major things that a USDA loan lender checks before approving the applicant. Therefore, itís important to keep your credit score monitored, making your debt payments on time, and not keeping balances above 25-percent fof revolving credit cards.

The required score to get a loan approved by a USDA lender is 640 and up. However, if the score is slightly below 640, there are chances that the lender could still approve the loan. It is better to have a clear discussion with the lender regarding the credit score beforehand.

• Income
USDA loans have a stricter limit on household income; individual or two or more adults. This is because these loans are designed for households undergoing some kind of economic stress. Hence, borrower(s) who apply should not exceed the median income of the area by 115%.

One can easily check the income eligibility on the USDA eligibility website. It is also crucial that the applicant has a stable income along with the required amount of liquid reserves, income to repay monthly installments for at least a year.

Another important qualifying factor that USDA home loan lenders check is the borrower's DTI (Debt To Income ratio), which can be calculated by dividing gross monthly debts by gross monthly income. This particular ratio should be 50% or less to qualify for the loan.

USDA home loans are for borrowers who are in genuine need to purchase a home. Buyers residing in a place without proper safety and proper sanitation, and/or in a risky neighborhood, those who have an overall income below the low-income level in a particular area or those who are unable to get the loan approved by conventional lenders tend to get their loans approved quickly.

Benefits of USDA loans

Major reasons why a USDA loan is better than conventional loans:

  • • There is 100% financing so there's no need for a down payment just pay for your closing cost.
  • • Even if the applicant has a flawed credit history, they can get the loan underwritten and checked by the USDA officials.
  • • Streamlined refinance assistance is available on USDA loans similar to FHA.
  • • These loans come with an affordable rate of interest, usually better than conventional loan rates.
  • • The loan origination fee is also low (2% of the mortgage amount). You will not have to pay it upfront, instead you can add it to the mortgage balance.