USDA loans have been around for many years – so many years that many people have forgotten about their existence when in fact they are still going strong- even stronger than before. 2016 is the year to get in on this great loan as its parameters are about to change, making it more difficult to obtain. The loan itself will likely remain untouched, but the number of people that will be able to obtain the loan may change drastically.
What is Changing?
The boundaries that are currently being used to determine eligible USDA properties is what is about to change. As it stands right now, more than 90% of the United States has properties that would be considered rural and therefore able to be financed with a USDA loan. These numbers are about to change though as the boundaries will be vastly different after October 1, 2015. The boundaries that are used today are those that were set up in 2000. The determining factor in which properties are considered rural and which are not is based on the consensus conducted in 2000. As everyone knows, population has drastically changed in the last 15 years, making these areas not as eligible as the USDA has made them. In order to be considered rural, the area must have fewer than 20,000 residents. Many of these areas have drastically improved since 2000 and are well over the 20,000 population threshold.
How will Things Change?
The fact that boundaries are changing will not alter a person’s ability to obtain a USDA loan unless the property is in a questionable area. The only way to ensure that you get the loan that you want through the USDA is to have everything in line before September 30, 2015. The USDA is accepting packages direct from lenders up until this date. This problem is that the file must be complete and ready to go; incomplete files will be returned and will not make the deadline. If you are sure that the home you are interested in purchasing will still remain rural according to the USDA, then there is no rush.
The Fees that Changed
Another change in the USDA loan status in 2015 is the amount of the upfront guarantee fee that is charged. This fee is what keeps the USDA able to provide loans to borrowers in the low to middle income bracket. The fee prior to 2015 was 0.4% but in 2015 it has increased to 0.5%. The jump was not drastic and will only impact loans slightly. For example, a $200,000 loan would have had an upfront guarantee fee of $800 before the increase, but it would now be $1,000. That $200 obviously makes a difference in the amount of money that must either be brought to the closing or that gets rolled into the loan amount, but the change is not damaging to most.
Everything Else is Status Quo
The USDA loan status is otherwise as stable as it was last year. In order to qualify, you must have income that falls within the range of your area’s median income. If you make more than your specified area’s average income, it can only be 15 percent more. This allows for this loan to help those that are in the low to mid-income bracket to get a home loan. Just like any other loan, you will have to prove your ability to afford the loan – this means showing creditworthiness, adequate income and a low debt to income ratio. The guidelines for the USDA loan are much less stringent than any other type of loan and still do not require any type of down payment. In fact, if you cannot afford to pay the guarantee fee upfront, you are able to finance the cost into your loan, even if your LTV is already at 100 percent.
The USDA loan status in 2015 could change quite drastically towards the end of the year. As it stands right now, many people are eligible for this loan as are many properties. After October 1, however, this will likely change and many properties will become ineligible. Everything else is remaining the same in terms of obtaining the USDA loan – none of the qualifying factors in terms of borrowers will change, at least for now. This means that the loan will still be easy to obtain, but finding the property to purchase might prove to be a challenge. The best thing you can do is start your purchase process early on in the year to ensure that you get your loan in before the October 1, 2015 deadline.