USDA loans were created to help low-income families be able to have suitable housing that they can call their own. The program is only available in rural areas of the United States, but that does not mean that it is not available in your area. A large majority of the United States is in a rural area, according to the USDA. They base their decision mostly on the population of the area as is determined by the census. If you are unsure which areas in your county are considered rural, consult the USDA website to see their boundaries – you might be surprised to see which areas are considered rural and are eligible for this incredibly giving and flexible financing.
The USDA loan requirements make it possible to get a loan for 100% of the purchase price; this means you do not need a down payment. To make it even better, you are able to roll your mortgage insurance fees into the loan above the 100%, making it very easy to afford the loan. The guidelines pertaining to this loan are rather flexible and focus on your ability to afford the loan while not making too much money. It is strictly a loan for those that would be otherwise unable to obtain any other type of financing. The basic USDA loan requirements are that you live in the home and that you do not own any other home; that you live in the US and are a citizen; and that no non-occupying borrowers exist on the loan. The goal of the USDA is to provide housing for those that would otherwise be unable to obtain clean, safe, and decent homes in the area they desire to live.
Qualifying for a USDA Loan
Qualifying for a USDA loan is similar to any other loan, especially like other government-backed home loans such as FHA and VA loans. The requirements are as follows:
- You must be a citizen of the US
- Debt to income ratio must not exceed 29 percent on the front end and 41 percent on the back end
- Your income must be consistent over the last 2 years
- Your employment should be consistent over the last 2 years
- A credit score over 620 with no collections within the last 12 months
The USDA program is meant for borrowers that have low income and cannot secure financing from any other source, which is why using this loan twice is not allowed. The only time you could use the USDA program a second time is if you are without housing right now, even if you were a homeowner before and used USDA financing. For example:
Joe owned a home 5 years ago. The home was in a rural area and was secured with USDA financing. Joe was forced to foreclose on that home 3 years ago, leaving him without a home for a while. Since then he has been renting an apartment in order to build his non-traditional credit history back up and to save money. Today, he is ready to become a homeowner again and found a home in a rural area. His credit score is 625 and his debt ratio is 29/40. He has consistent employment with the same employer for the last 3 years. Because it has been three years since the foreclosure and his other conditions meet the requirements of the loan, he is eligible for a second USDA loan.
If, on the other hand, Joe’s foreclosure was within the last 2 years or his credit score was not above 620 yet, he might not be able to qualify for a second USDA loan. Any borrower whose credit score is below 620, yet above 580 might still qualify, but will be under much tougher scrutiny than someone with a higher credit score. If Joe did not have reestablished credit yet, he could qualify using nontraditional credit as well; however, those borrowers also undergo additional scrutiny. Nontraditional credit would mean using things like rent payments, utility payments, and insurance payments to qualify. The lender would need to see the last 12 months’ worth of those payments and proof that they were made on time in order to be considered for the loan.
The long and short answer regarding whether you can use a USDA loan twice is that it depends on the situation. If you currently own a home, then the answer is cut and dry – you cannot use USDA financing again. If, however, you used it in the past and want to use it again and cannot secure any other type of financing, then you can use it again as the USDA Rural Loan is not reserved strictly for first-time homebuyers.