U.S. Department of Agriculture has affordable housing programs that help American families achieve the American dream. The Rural Housing Loan program allows qualified applicants to purchase a home with no money down in Rural Housing-eligible locations. Since its inception in the 1990s, this has become one of the most popular loan programs available due to its affordability and lenient requirements. An easy way to see if you prequalify is to determine whether or not you meet the following criteria:
- You live in a Rural Housing-eligible area or desire to move. Rural areas aren’t just considered to be open country and small communities. In fact, 97% of the country falls into a Rural Housing-eligible area. USDA aims to strengthen and grow rural communities by offering affordable housing. You can easily check the eligibility of any home on USDA’s website.
- You don’t make too much money. Rural Housing was created so that lower-income families can afford to buy their own homes. Income guidelines are based on the average income in a particular geographical area, so it depends on where you live or wish to live. The average U.S. yearly per capita income is $27,000, so many people fall within the income guidelines. Income guidelines also depend on the amount of people in your household. If you don’t make enough money to qualify for the loan, you may also add co-borrowers.
- You have a credit score of 620 or above. The Rural Housing credit requirements are much more forgiving than other mortgage loan programs which require a 640 or above. As long as you’ve had 2 positive lines of credit on your report with 2 years of solid employment and have no outstanding debt in collections, you may qualify for a loan. Rural Housing also allows past bankruptcies and foreclosures—bankruptcies after 2 years of discharge and foreclosures after 3 years. Other loan programs require up to 7 years before they will consider a borrower with that credit history. If a borrower doesn’t have the necessary lines of credit, alternative line of credit such as utilities and rent may be considered.
- You can prove you are able to pay a monthly mortgage payment. Even though the Rural Housing program requires no down payment, there are closing costs and fees that are due at closing. Fortunately, these costs and fees can be financed into the loan so that no money is due out of pocket at the time of closing. The is great for borrowers who need cash after closing for any home improvement, utilities, moving expenses, or other costs that may arise. When the Underwriter reviews your file, he/she will determine whether or not your income will allow you to affordably incur a mortgage loan. Your debt-to-income ratio must be around or below 41%. It is a good idea to pay down any large credit card debt to below 50% of the limit and eliminate any small debt that may affect your DTI.