You can secure 100% financing for a home with the USDA loan. There’s a catch, though. You must buy a home in the USDA loan areas. The areas change approximately every 3 to 5 years. The next scheduled change is for October 1, 2017. This is subject to change, though. Regardless of the changes, you should always check the eligible areas before applying for USDA financing. If you don’t buy a home in a rural area, you’ll need other financing options, some of which require a down payment. Here we show you how to use the USDA eligibility maps.
Using the USDA Website
The easiest way to find USDA loan areas on your own is with the USDA maps. First, you must accept the disclaimer. Once you accept, the site brings up a map of the United States. First, choose “Single Family Housing Guaranteed.” This is the most common USDA program. The USDA Single Family Direct program is for very low-income families. Next, decide if you want to search a specific address or a general area.
Searching a Specific Address
If you have your eye on a property already, you have an easy task ahead. Simply type the property address in the appropriate box on the map. The site will let you know if the property is eligible or not. If it’s eligible, you are in luck. If it’s not, don’t get discouraged. You now have a map of eligibility for the general area. You can determine if the home you like is within range of an eligible area or not. The pink shaded areas of the map are the ineligible areas. You can zoom in or out on the map to get an idea of eligible areas.
Searching a General Area
If you don’t have a home in mind, you can search the general area. After accepting the disclaimer, just click on the map. First, click on the state you need. Then click on specific areas. You can then zoom in and out of each area. Again, the pink shaded areas are ineligible. You can get as specific as you want. For example, look at each side of the street. One side may be rural and the other may not. Make sure you zoom in far enough to see these details.
Finding a Qualified Home in USDA Loan Areas
Finding a home in USDA loan areas is just the first part of the process. Not every home passes the USDA appraisal despite its location. The USDA guarantees these loans, so they have strict requirements regarding which homes qualify. First and foremost, the home must be modest. The USDA doesn’t provide 100% financing for luxurious accommodations. In addition, the home cannot have a pool or be a manufactured home not permanently attached to the ground.
The USDA appraisal must show the home is in good condition. It must meet local building codes and be safe. Following are a few examples:
- The appraiser must inspect the foundation and crawl space. If they find termites or termite damage, they’ll require a termite inspection. If there are termites, they must be taken care of and the home repaired before the closing.
- Any signs of mold or mildew require further inspection. The appraiser provides the report of the damage. The seller must then fix the problem before you can close on the loan.
- The appraiser also checks all other systems in the house. Any issues with heating, plumbing, or electricity must be handled before the closing.
Keep in mind, the appraisal differs from an inspection. The appraiser checks basic functionality of the home’s systems. If there are serious issues that affect the system functions, the appraiser won’t know. Any issues that pop up are obvious and make the home unsafe. The seller must agree to fix them or your financing could fall through.
Qualifying Income for a USDA Loan
Remember, it’s not enough to find an eligible property. Your household income must also qualify for the program. The USDA looks at the income of every household member over the age of 18. They total up the income and compare it to the USDA income guidelines. Your household income can’t exceed the maximum for your area. They base the amount on the cost of living in the area. The more people in your home, the more income you can have. You also get a few allowances for certain situations:
- Children under 18 and over 18 in school – $480 per child
- Elderly relatives over the age of 62 – $400 per person
- Disabled relatives of any age – $400 per person
These allowances lower your eligibility income. Keep in mind, this is not your qualifying income. Only the borrowers on the application may use their income for debt ratio purposes. For example, if grandma and grandpa live with you and help you with the expenses, their income doesn’t count for qualifying. The only way you could use it is if you put them on the loan. If you and your spouse buy the home, only those incomes count for qualifying purposes. Luckily, the USDA has relaxed debt ratio guidelines. They allow a maximum 29% housing ratio and 41% total debt ratio.
Finding USDA loan areas isn’t as hard as it seems. Many people assume rural means out in the middle of nowhere. It’s not the case, especially with the delayed changes to the USDA map. If you have an interest in USDA financing, act fast. The boundaries are set to change later this year. Whether they will or not remains to be seen. However, taking advantage of the loan program now can help ensure you get the program you need. Compare your household income to the maximum allowed for your area and see if you qualify. Next, work on your qualifying factors, as you would for any other loan.
If you qualify, you could secure 100% financing for a decent home right next to the city line. Check out your options today!