Are you the type of person that wants to own your land and do the construction of your home yourself or oversee it yourself? There are a few loans that allow you to do that, but among the easiest are the USDA land loans. Many people are not aware of the availability of these loans and the ease of which they are processed, allowing them to build the home of their dreams. The process is rather simple and straightforward and is really no different than any other USDA loan.
What is a USDA Loan?
The USDA loan is backed or guaranteed by the USDA, as the name suggests. You apply for the loan with your lender that offers these types of loans and then it goes through the USDA. They have the final say on whether or not you can obtain the loan as they are guaranteeing it if you should default; this means the lender has no risk in lending to you. In exchange for an easier to qualify for loan, you are going to have to pay an upfront guarantee fee to the USDA, which is either paid at closing or rolled into your loan amount as well as an annual guarantee fee, which is paid monthly. The upfront fee is currently 2% of the loan amount and the annual fee is 0.5% of the loan amount. You can think of these fees as similar to the upfront and annual mortgage insurance that the FHA charges.
Getting Approved for USDA Land Loans
Getting approved for USDA land loans is no different than any other type of loan. You start by going to your lender and applying for the loan. They will pull your credit, ask about your employment, income and assets. They will also inquire about the land you wish to purchase and what your plans are for the land. This application is then processed by the lender who determines whether or not you are eligible for the loan. The qualifications for this loan are much simpler than most other loans – a minimum credit score of 620-640 is enforced by some lenders, but not all. If you cannot find a lender to loan to you, there are others that might. Your income cannot exceed 115% of the median income for your area and you cannot have more than one late payment on your credit report during the last 12 months. If you meet these requirements and your land is USDA approved, chances are you will get the loan.
The USDA Land Loans Difference
There are a few differences between the USDA land loans and standard loans. The land loans require you to be actively building a home on the property. In general, you have 180 days to complete the process and close on the loan. If this is completed on time, you will not have to go through the underwriting process again and can enjoy your USDA financed property. This means that you do not have to put a down payment down, you simply have to pay the guarantee fees, both upfront and annually, as well as the closing fees. The loan amount that you will be provided will be based on the improved value of the site – which means the land with your house on it, when it is complete. There are no seasoning requirements, which mean you do not have to own the land for 6 to 12 months before the USDA would provide you a loan.
The Easy to Qualify for Loan
If you are insistent on building your own home, you will need the money to get it built. The USDA land loans are among the easiest to qualify for because the less money you make, the more eligible you become. Of course, you will need to watch your debt-to-income ratio in order to qualify as they want to make sure that you can reasonably afford the loan. If you have blemishes on your credit history in the last 12 months, it is best to wait until you have a full 12 months of clean history to apply – other than that, most people that fit within the income and property guidelines are eligible for this easy to afford loan.
The USDA land loans are among the easiest among the land loans available amongst the FHA and Fannie Mae. Among the largest differences are the seasoning requirements required by the latter two entities as opposed to the USDA. If there is not enough seasoning, the other entities will reduce the amount of the loan amount that borrowers are eligible for, which could hurt your efforts of building your own home in the long run. If you are in a USDA area, it makes sense to see if you can obtain one of the USDA land loans to build your home.