USDA Mortgage
Home Loans

USDA Mortgage Home Loan Programs

The USDA loan program is designed to provide financial assistance to underdeveloped communities for borrowers who have average to median income or below average income.

The USDA loan program does not provide financing for cash out refinancing, debt consolidations on debts that are not directly related to improving the property, or lend on second homes or investment properties.

The USDA loan program is ideal for borrowers with low to moderate income as long as the property is determined to be in rural areas as declared by United States Department of Agriculture. You can check if a property is located in USDA rural area by entering the property address on their website.

Reasons to use USDA Loan:

1. Purchase a Home

2. Home Improvement Loan

3. Refinance existing loan

The underwriting of a USDA loan is very similar to most all other loan programs like conventional, FHA Loans, and VA loan programs. Applicants will be required to verify monthly payment history showing no 30 day late payments in the last 12 months.

Once the lender completes the USDA loans' underwriting process, the file will be transferred to USDA Guaranteed Loans underwriting office for a second and final loan approval.

Therefore, applicants should understand that while USDA loans offer low interest rates and fee home loans, the additional round of underwriting adds to the closing time by an estimated 15-30 days.

 Qualifying for a USDA Mortgage Loan

To qualify for a USDA mortgage loan, you need to meet certain criteria. Here are the main Single Family Housing Direct eligibility requirements:

1. Location

USDA Rural Development guidelines require that the property must be located in a designated rural area. You can check if the property is in rural areas and eligible on the USDA's website.

2. Income

Your income must not exceed a certain limit, which varies by location and the borrower's household income and size. The USDA has income limits and eligibility maps and tables on their website that you can use to see your income eligibility limits and determine if you qualify.

3. Credit Score

You need to have a credit score of at least 620 to qualify for a USDA home loan. However, some mortgage lenders may have their own minimum credit score requirements.

4. Debt-to-Income Ratio

Your debt-to-income ratio (DTI) must not exceed 41%. This means that your monthly debt payments (including your mortgage payment) cannot exceed 41% of your monthly income.

How to apply for a USDA Mortgage Home Loan?

Once you have determined that you meet the income eligibility and requirements for a USDA mortgage loan, you can begin the application process. Here are the steps you need to follow:

1. Find a USDA-approved lender: You can find a list of USDA-approved lenders on the USDA's website.

2. Pre-qualification: Before you apply for a USDA mortgage loan, you may want to get pre-qualified. This involves providing your lender with basic financial information (such as your income, assets, and debts) so they can give you an idea of how much you may be able to borrow.

3. Gather documents: You will need to provide your lender with several documents, including:

   • Proof of income (such as W-2s, tax returns, and pay stubs)

   • Proof of assets (such as bank statements and investment account statements)

   • Proof of employment (such as a letter from your employer)

   • Proof of identity (such as a driver's license or passport)

4. Complete the loan application: Once you have gathered all the necessary documents, you can complete the loan application with your lender. Be prepared to answer questions about your income, assets, debts, and employment history.

5. Wait for the loan to be processed: After you submit your loan application, your lender will review your application and the supporting documents. They may also order an appraisal of the property. This process can take several weeks.

6. Receive the loan decision: Once the loan has been processed, your lender will let you know if you have been approved or denied for the loan. If you are approved, you will receive a loan estimate that outlines the terms of the loan, including the interest rate and closing costs.

7. Close on the loan: If you decide to accept the loan, you will need to attend a closing meeting where you will sign the loan documents and pay any closing costs. After the closing, the funds will be disbursed to the seller, and you will become the owner of the property.

In summary, qualifying for a USDA mortgage loan involves meeting certain eligibility requirements related to location, household income amount, credit score, and debt-to-income ratio.

Applying for the loan involves finding a USDA-approved lender, gathering documents, completing the loan application, waiting for the loan to be processed, receiving the loan decision, and closing on the loan. By following these steps, you can successfully apply for a USDA mortgage loan and become a homeowner in a rural area.