The USDA-guaranteed loan is one of the government’s least-known mortgage programs which is surprising because it has more advantages than most other government mortgage loan options. It is particularly beneficial to rural and middle-class Americans because the loan is only applicable to homes in rural areas and there are income guidelines in place that specifically advantage middle-class citizens. The USDA loan requires $0 down, so borrowers don’t have to make any initial down payments or pay closing fees out of pocket.
To qualify for a USDA-guaranteed loan, you must meet income guidelines. The USDA loan is structured so middle-class or lower income Americans have access to low, affordable mortgage rates. If your income exceeds their guidelines, you will not qualify for 100% financing, but there are still low-cost loans available to you such as the FHA loan which only requires 3.5% down. Income is calculated by the number of people in your household and where you live in the U.S. Income thresholds vary across the country due to more densely populated areas or higher-income regions impacting the per capita wages.
If your income qualifies, you must choose a home in a USDA-approved rural area. Nearly 97% of the nation resides in a rural area as designated by USDA, so finding an eligible property isn’t difficult. USDA actually has the option to search for authorized homes on its website. You simply enter the address and the map will show whether or not it’s eligible. The USDA-guaranteed loan can be used for existing homes, new construction, or foreclosed houses and there is no maximum purchase price limit. Homes are subject to an appraisal and if the home doesn’t pass a home inspection, it may not qualify for the USDA-guaranteed loan.
Your credit must meet USDA’s standards to qualify for the USDA-guaranteed loan. These standards, however, are lower than comparable programs. For instance, FHA requires borrowers to have a FICO score of at least 640, but USDA requires a 620 or above. The USDA-guaranteed loan is also less strict on credit history. Most loan programs require a 7-year wait after discharge of a foreclosure, but USDA only requires 3 years. Bankruptcies are also overlooked after 2 years. To be preapproved, you do need at least 2 active lines of credit that have been maintained for 12 months. You can’t have any outstanding federal debts or judgements on record, and no new collections can have been reported over the previous year. Your debt-to-income ratio must also pass guidelines, usually not to exceed 41% of your monthly income with your new mortgage factored in to your payments.
The USDA-guaranteed loan has many benefits to potential homebuyers. It is low-cost with lenient credit and income guidelines, so many people may qualify who wouldn’t be approved by other loan programs. The USDA is helping to build the economy in rural regions while assisting Americans with dreams of homeownership.