Guidelines Archives - USDALoan.org

For USDA Homeowners, Here Are Your Options to Avoid Foreclosure

October 24, 2017 By Justin

Life happens. Natural disasters, illness, job loss, and other setbacks could prevent you from meeting your monthly obligations on your mortgage. If foreclosure is inevitable amidst a gloomy financial picture, know that there could be a way to save your home and avoid it.

USDA loans, for instance, have established guidelines on how mortgage servicers deal with delinquent accounts and those with repayment problems. More importantly, USDA rural housing loans have loss mitigation options to avoid foreclosure.

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USDA Offers Options for Borrowers to Keep Homes, Avoid Foreclosure

The USDA Rural Development authorizes its approved mortgage servicers to use “effective actions and strategies to assist borrowers to retain their homes…”

This means providing loss mitigation options where feasible to borrowers. Indeed, the USDA recognized that servicers through their constant communication with borrowers are in the best position to determine which loss mitigation option is most appropriate in a given circumstance.

A loss mitigation option is designed to offer relief if you are facing default or imminent default on your loan. Per USDA standards, a loan is in default if it has failed to perform under any of its mortgage covenant or deed of trust for 30 days or more.

Curable vs Incurable Default

Supposing you are at risk of defaulting on your loan. Your mortgage servicer may agree to a special forbearance agreement or a loan modification if your failure to meet your monthly payments was involuntary and likely to continue.

If your delinquency is curable and you are committed to remain in the home, the servicer may provide the following options in this order:

Special forbearance. A plan that calls for a (i) gradual increase of monthly payments so it can repay the mortgage arrears or (ii) temporary suspension of monthly payments for a short period. It may also involve payments covering several months followed by a loan modification.
Loan modification. This means permanently changing one or more terms, e.g. interest rates, of your mortgage to bring your payment to something you can afford and your loan to current status.
Special loan servicing. Under special loan servicing, servicers are authorized to lower the interest rate or extend the term on loans facing imminent default. The special loan servicing will result in a mortgage payment-to-income ratio as close to 31% but not more than 36%.

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If the source of your delinquency can’t be cured — the problem will persist and you have no feasible way to deal with your expenses or replace lost income to meet your mortgage obligations, then your servicer may have to consider a disposition option in this order:

Pre-foreclosure sale
Deed-in-lieu of foreclosure

It’s possible to be afforded of two or more loss mitigation options but servicers must follow these rules governing combined options.

For instance, a special forbearance and loan modification can be combined but should be done in sequence and not simultaneously. In the same way that a pre-foreclosure sale may be done with a deed-in-lieu of foreclosure only if the home did not sell within the required period.

Eligibility for Loss Mitigation Options

Generally speaking, you must occupy the home securing the mortgage as your primary residence. If you have vacated your home because of work, natural disaster, medical, or other involuntary reason, you may be exempt from this occupancy rule.

If you have filed a Chapter 13 bankruptcy petition, you can still be considered for a loss mitigation option but your servicer is required to document your pending plan and seek approval of the Chapter 13 trustee before executing the loss mitigation option.

Otherwise, eligibility standards on each loss mitigation option will apply.

Foreclosure should be your last resort. Aside from the impact of losing your home, your credit score will bear the brunt of foreclosure.

It will stay on your credit report for seven years and could dampen your prospects of getting a mortgage while it remains. Never hesitate to ask for help from your servicer. Speak with one immediately.

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Get to Know the Different Agricultural Loans Under the FSA

September 20, 2017 By Justin McHood

It’s a known fact that the United States Department of Agriculture ( USDA) has been helping aspiring and hard working farmers all over the country. The USDA offers agricultural loans with different purposes to cater farmers with specific needs.

The agriculture industry has long been proven to be one of the biggest contributors to the economy. Agricultural produce continuously provides food to a majority of the American household and the agricultural businesses all other the country provides employment and income for many individuals as well.

Which begs to prove that agriculture is an essential aspect of the society. But ultimately, its strength gives fire to passionate farmers who continuously strive hard to provide food and other agricultural products for all.

Other than USDA home loans, the department provides assistance to farmers and ranchers as well. Thanks to the agency known as the Farm Service Agency, the agriculture industry is properly conserved and regulated. They offer agricultural loans for many existing and aspiring farmers in the country.

Standard Farm Loan Programs

As mentioned, the FSA provides agricultural loans programs of different intents and purposes. Let’s do a roundup of the various loan programs under the FSA.

Get more information about loans under the USDA here.

Direct Operating Loans

For the financial needs of a farm’s operation like buying new equipment, feed and fertilizers, chemicals, and other operation-related expenses, getting direct operating loan is the way. Other than purchasing, this loan can also finance improvements to your farms and repair costs for farm buildings.

Microloans

Beginner farmers and ranchers have a perfect loan option for them. For small farms, niche farms, specialty crop and other non-traditional farms, microloans can make their farming goals a possibility. One thing that makes these agricultural loans a good option is that this type gives fewer hassles because it only requires less paperwork.

Direct Farm Ownership Loans

Purchasing a farm or ranch land is the main purpose of this type of agricultural loan. Other than that, this loan can finance construction and improvement costs of existing farm buildings as well as water and soil protection resources.

Guaranteed Loans

For those borrowers who can’t qualify for a standard commercial loan, a good choice as an alternative is a guaranteed loan.

Target-specific agricultural loans

Youth Loans

As for the youth who are participants of 4-H clubs, FFA, and other similar organizations, the FSA offers a youth loan that can give financing to different agriculture-related efforts.

Loans for the Minority and Women Farmers and Ranchers

For loan programs for the minority and women farmers and ranchers, the FSA also offers those types of loans. These can help them get financing for land purchase and other farm business related projects.

Beginning Farmers and Ranchers

If your farm has been in operation for less than 10 years, this loan option is the answer. Typically, standard farm loans would be a little hard for you to obtain so the FSA has created a loan option that targets this certain demographic.

Specialty Loans

Emergency Loans

These types of agricultural loans are the answer to any financing needed after disaster strikes. Nature is an uncontrollable force but FSA can help you rebuild your farm business through their emergency loans.

Native American Loans

True to its name, Native American Loans offers financing opportunities to native Americans who seek to build their farms on tribal lands.

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What is the Income Ceiling for USDA Loans?

August 21, 2016 By Justin McHood

The USDA Rural Loan gives you access to flexible and affordable financing on a home within a rural area. The program is strictly used for primary residences, however, as one of the largest stipulations of the program is that you do not currently have decent, safe, and clean housing. Using the loan twice would not meet those requirements, which would make you ineligible or a second loan with this program. The idea behind the program is to help the economy and increase the quality of life in certain areas; it is not to help borrowers make a profit on investment homes or purchase a second home as a vacation home.

USDA loan eligibility depends on a variety of factors that are unique to this loan program. The standard requirements still preside, including the need for a particular credit score and debt ratio; however, the program also requires a particular geographical location for USDA financing as well as specific household sizes/incomes. Because it is a low-income program, income ceilings exist in order to prevent people from taking advantage of the low costs and interest rates of the loan. Every area of the United States has a different income ceiling as the USDA parameters state that the total household income cannot exceed 115 percent of the average income for the area. This amount would greatly differ from a county in California and a county in Missouri, for example.

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Total Household Income Matters

Unlike other loans, the USDA qualification guidelines require that you include all household income to determine your eligibility for the program. This is different than the “qualifying” income which is used to determine your interest rate and whether or not you are a good risk for financing. Eligibility income is the total income of everyone in the home; this includes children that are of age and have a job as well as any other extended family members that reside with you. Their income must be figured into the eligibility income to determine if your total household income is within the 115 percent of the average income for the area. In this case, if your household income is too high, you would not qualify for the loan because the USDA assumes that you would have access to other loan programs with a higher income bracket and USDA loans are reserved for low to moderate income families.

The USDA breaks down the income limits into 3 categories: very low income; low income; and moderate income. It is the families in the moderate income bracket that qualify for a guaranteed loan, which is a loan similar to the FHA loan. The USDA guarantees the loan for the lender, which means they will pay the lender if you were to default on the loan in the future. This allows the lender to take a few more risks than they would likely take if they were on the hook for the mortgage on their own as it would be too risky to lend to a large number of borrowers with a risky loan profile.

The borrowers within the very low and low-income brackets might be eligible for a different type of USDA loan, called a Direct loan. In this program, the borrowers are eligible to receive a subsidy of sorts to help lower their mortgage payment temporarily so that they can secure decent housing without making it very difficult to afford.

In addition to the different income brackets, the USDA breaks income down by family size. The amount of income your household is eligible to have and still qualify for a USDA loan goes up for every household member that you have. The USDA guidelines go up to an 8-person household, but if you were to have more than 8 people in the house, you would adjust the income upwards 8% of the 4-person household for your area for each person you have over the 8-person limit.

Income Allowances

Just as there is a ceiling for USDA loan income eligibility, there are income allowances that you can take in order to decrease your gross monthly income, helping you to qualify for a home in your area. The allowances are as follows:

If you have children living with you that are under the age of 18, decrease your income $480 for every child
If you have children living with you that are over the age of 18, but are full-time students, decrease your income $480 for every child
If you have family members living with you that are disabled, decrease your income by $480 for every disabled person
If you have family members living with you that are considered “elderly”, decrease your income by $400

These deductions allow you to lower your eligibility income, enabling you to meet the income ceilings a little easier.

Because the USDA loan program is for people that cannot afford any other type of financing and live within a rural area, it makes sense that the program has income limits. Unlike other programs where the more you make, the better off you are, this program restricts your income. This prevents the program from being abused by those that could afford any other type of financing, though, since the USDA guarantees the loans and funds the program in order to better certain areas of the country. If you are within the income limits of the USDA loan requirements and have found a home that is considered rural, it is well worth it to look into the benefits of a USDA loan!

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Can you Use a USDA Rural Loan Twice?

August 7, 2016 By Justin McHood

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.

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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.

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2016 USDA Lending Guidelines and Requirements for Rural Home Financing

June 10, 2016 By Justin McHood

USDA loans offer the simplest qualification requirements, yet the most specific property guidelines over any other loan type. If you are a first-time home buyer or a subsequent homeowner, this program is a suitable method of financing a home if you fall within the low to medium income bracket for your area. There are many requirements you must follow in order to qualify for this program, but if you meet those guidelines, the individual factors that enable you to get approved for the loan are among the most flexible in the industry.

USDA Credit Qualification Requirements

The credit guidelines for the USDA loan program are very flexible. Generally, you need to have a credit score higher than 580 in order to apply for this method of financing. If your score falls in between 620 and 580, the agency considers you a “higher risk” which means your file will be under more scrutiny than it would if you were to have a better credit history. In general, however, everyone must have the same basic qualifications, including very few late payments reporting on their credit report. More than one late housing payment in the last twelve months requires the lender to look back at your housing history for 3 years. If there are more than 2 late payments in that time, you become ineligible for the loan. All other credit requirements are simple to follow and easy to work around, especially if you have a high credit score.

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USDA Income Guidelines for Borrowers

The USDA loan program is among the only finance products available that requires you to make less money, rather than more. Because USDA financing began to help those with low income become homeowners, you must fall underneath 115 percent of the average income for your area. Every area has a different median income based on its cost of living. In addition, your family size helps to determine the allowed total income for your household. For example, if you have 5 family members, you have a higher allowed amount than a family of 2 in the same area. The USDA will take into account the salaries and wages of all adults in the house that work full-time as well as those that work part-time and have held that job for the last 12 months. Certain alternate incomes get figured into the amount as well. These sources include social security, disability, alimony and child support. Any income that can be proven by the source as well as its receipt with your bank statements and that is set to continue for at least 3 years will get figured into your total income. The gross amount of earnings you bring into the household is not what the USDA uses to determine your eligibility, however. They use an adjusted figure, which takes into account the allowances you are eligible to deduct if you have children; anyone disabled living with you; or an elderly person residing in your home. The USDA calculates your eligibility after the specific deductions are taken.

Down Payment – 100% Financing

One of the negatives in any loan program is the amount of money you must come up with to get the loan. As it stands right now, FHA loans and the Conventional 97 program offer the lowest requirements – the FHA requires 3.5 percent and the Conventional 97 requires 3 percent up front. The USDA down payment requirements make those programs look expensive in comparison, though. One of the largest benefits of the USDA loan is that you do not need to put any of your own money down on the home in order to purchase it. The only other program that offers this benefit is the VA loan, which of course, you must be a veteran to receive. In addition to the ability to put nothing down, you can roll your closing costs and the 2.75 percent funding fee into the mortgage if there is room between the contracted purchase price and the appraised value of the home. If you wish to refinance into another USDA product, you can roll the closing costs into the mortgage if there is adequate equity to keep your loan amount less than 102 percent of the value.

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Maximizing your Loan-to-Value Ratio

If you are not able to put any money down on the USDA loan and want to roll the closing costs into the loan, the home you purchase will need to appraise for a value higher than the contract price you pay. For example, if a home appraised for $120,000, but your contract price is $110,000, you have $10,000 available to pay for the closing costs (not that they would get that high). This is how the agency enables you to put nothing down and still roll your costs into the loan. Many people roll not only the closing costs but also the funding fee of 2.75 percent of the loan amount into their total loan amount. Consumers that wish to purchase a home in a rural area have a great advantage with the USDA program because of the little amount of money that is necessary to purchase the home. Combining the no down payment requirements with the low income requirements and favorable terms makes this loan program a great way to purchase a home and still have money in your pocket for moving expenses and starting out in a new home.

USDA Property Eligibility

USDA loans are meant for home buyers that would not qualify for any other type of financing because of their inadequate amount of income. Because of its unique purpose, there are specific USDA property requirements you must meet in order to take advantage of this loan program.

Rural Location Requirements

The easiest parameter to meet when it comes to USDA financing is finding a home in a rural area. If you look at the USDA website, you can see which areas around you are considered rural. You will likely be surprised at the vast area that is included. Generally, areas with a population of less than 20,000 are within the parameters of the rural guidelines and more than 90 percent of the United States falls within the USDA boundaries.

The House Size and Value

The housing covered under the USDA program includes only those homes that are considered modest. This means their value does not exceed the maximum USDA loan amount for your area, which can be found on the USDA site broken down by county. In addition, the property may not have any of the following features:

In-ground swimming pool
Land or building area that will allow for income producing

In addition, every home must be safe and sanitary to live in for this program. This means it must pass a proper inspection, be structurally sound, and have working systems including plumbing, electrical, sewage, and heating/air. A licensed inspector will determine the status of the property for the lender in order to determine if it passes USDA guidelines. In addition, if the inspector determines that the home is within a flood range, it will be necessary to secure flood insurance in order to meet the USDA property requirements. The dwelling must also be easily accessed by main roads and all streets must be hard surfaced. The USDA property requirements are not out of the scope of many other loan programs, but it does require that your home not be overly costly. This is done to help those that need the financing to become homeowners that would otherwise be left without a place to live as a result of inadequate income and qualifying factors. The USDA is rather particular about the properties it allows into its program, making it one of the harder requirements to meet. The property must be within the rural boundaries set forth by the agency, which you can find directly on their website. There are numerous areas considered rural, many of which you might not even realize, so it is worth checking out what areas can qualify for this program. Once you are within the boundaries, however, you must purchase a home that is modest in nature. This means that its price is not higher than the maximum loan amount set forth for your area. In addition, the home must not have a swimming pool or be used for any type of income production. An inspector will determine if the property meets USDA guidelines as well – it must be structurally sound, safe, and sanitary to live in for USDA financing. The USDA loan requirements might sound specific and rather difficult to meet, but overall, they are much more flexible than any other mortgage product. Once you are within the USDA boundaries and have the credit score and low enough income to meet the parameters of the program, most lenders can work around all other requirements to get you qualified.

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USDA Land Loans – Build your Own Home

March 28, 2016 By Justin McHood

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.

USDA Streamline Refinance: The Easy way to Refinance

March 21, 2016 By Justin McHood

If you have a USDA loan and want to take advantage of today’s lower rates, the USDA streamline refinance is one of the easiest loans to obtain and close fast! The program is restricted to current USDA loans, which means you would have had to already go through the USDA process once before in order to qualify for this streamlined process. This time around, the process is definitely going to be easier and less time consuming for you because the hardest part of the process – determining your property’s eligibility is already done, which means waiting for the USDA to approve your loan is not necessary. This loan is meant to mimic that of the streamline refinance from other government backed loans, such as the FHA and VA streamline refinance and works in many of the same ways as those loans operate.

How to Qualify for a USDA Streamline Refinance

Qualifying for a refinance of your USDA loan is simple. First and foremost, the home you are refinancing must be your primary residence. This means that it cannot be an investment home or a second home – it must be the home that you and your family live in year round. The other obvious factor in qualifying for this loan is that you need to already have a USDA loan, which was spoken about above. In addition, the new interest rate that you will be obtaining will need to be a minimum of 1 percent less than your current interest rate in order to qualify for the program. The only other qualification s that you have a clear mortgage history for the last 12 months – this means that you made on-time payments for the last 12 months. The lender does not need to worry about your credit score (only the housing history counts) nor verify your employment/income. You automatically qualify with a clean mortgage history.

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Where do you Live?

The USDA streamline refinance program was originally started as a pilot program. This was back in 2012. It has since grown immensely, but is still restricted to certain states. It started in only 19 states – those states that were considered the hardest hit from the economic issues and housing crisis that occurred. Since that time, 15 more states have been added. If you want to know if your state is eligible, simply visit the USDA website to see if your state qualifies.

Requirements for the Refinance

If you are refinancing into another USDA loan, it is important to note that flood insurance is a requirement if your home is located within a flood zone – if you already have a USDA loan, chances are you already have this insurance in place. You will also be subjected to the same USDA fees that you incurred when you took out the first loan. This means that you will need to pay the upfront guarantee fee of 2% of the loan amount again as well as the 0.5% annual guarantee fee, which you are already paying on your current loan. Basically, the new charges will be any closing fees and the additional upfront guarantee fee.

The Terms

The terms of the USDA streamline refinance program are straightforward. Only 30 year terms are available, which means that you cannot shorten the length of your term by refinancing, as you can do with a conventional loan. In addition, only rate and term refinances are allowed – you cannot take cash out of the equity of your home with a streamline refinance. The program is meant to be as simple as possible in order to make it possible for homeowners to take advantage of the low rates available without having to go through the intensive approval process once again. If you were to take cash out of your home, a whole new file would have to be started and your income and ability to repay the loan would need to be assessed as a cash-out refinance is much riskier than a rate and term loan.

The largest benefit of the USDA streamline refinance program, aside from the ease of applying and qualifying for the loan is the fast processing time. If you remember from your original USDA loan, the process probably took a long time to get you to closing. This is because the lender must process your file, ensure that it is complete and then send it off to the USDA for processing. They need to then determine your property’s eligibility as well as determine that you fit the parameters of their guarantee guidelines. This process might have taken months. The streamline refinance, on the other hand, is typically complete within 3 weeks of the start of an application. This means that you can have your lower payments on your next mortgage payment if you start now!

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Bad Credit is not a Barrier for USDA Rural Home Financing

March 15, 2016 By Justin McHood

When you are ready to purchase a home, your credit plays a vital role in the type of loan you will be offered. There are many loans available on the market today, but one of the most affordable and easiest to qualify for are the USDA loans. The USDA credit score requirements are among the most relaxed guidelines available on any loans today. Even though the requirements are lax, it does not mean that you can have extremely bad credit and still get the loan. The lender that provides the loan has the final say in whether or not you get a loan – if the lender is not willing to lend to you, the package will never make it to the USDA’s office for their approval, which will make it impossible for you to ever get a USDA loan.

What is your Credit History?

Your credit history is like a timeline of your past financial purchases and how you paid them. It will show the number of on time and late payments that you have made over the last few years. Some credit lines drop off after a few years, but derogatory credit typically remains on the report for many years. Late payments are categorized as 30-days, 60-days, 90-days, or 120-days late. Anything more than 30-days late is typically a serious hit on your credit report and will not allow you to get a loan, if it has occurred within the last 12 months. This is even true for USDA loans. Other items that your credit history will show include any liens on your property, collections, bankruptcies and foreclosures, each of which greatly decrease your credit score and make it difficult for you to get any type of loan.

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How the USDA Looks at Credit

The good news is that the USDA does not focus on your actual credit score; rather they look at your history. Even if you have a blemished history, but have shown responsibility since that occasion and have made up for the errors in your past, you can often qualify for a USDA loan. The USDA credit score requirements are among the most relaxed among the industry. In general, they want to know that you are going to pay your loans now and well into the future – they do not worry about the past. Typically if you have a spotty credit history, the occasions need be at least one year ago – if there were any lates during the last 12 months, it will be harder to qualify though.

A Minimum Credit Score

Some lenders will require that you have a credit score of at least 640 in order to qualify for a USDA loan. This is more for their purpose than that of the USDA. Because the lender is the one providing the loan, they have the final say in what gets approved and what does not. Typically credit scores lower than 640 signify a much higher risk of default based on the history of loans. This does not mean that if you hit a bad spot in your life and ruined your credit that you are considered a high risk, but you might have a harder time finding a lender that is willing to supply you with the loan. The best thing to do is work on repairing your credit before applying for the USDA loan. This is why it is important to know your credit history before you apply for a loan; if your history is bad, you will have the opportunity to make things right before any lenders pull your credit and deny you for a loan.

How to Repair your Credit

If you are trying to bounce back from bad credit, there are several things you can do to meet the USDA credit score requirements. Start by making all of your payments on time. This will help your score increase with this one simple change. In addition, take inventory of all of your outstanding credit – if the amount of credit you have used exceeds 30% of your credit limit, it is greatly hurting your credit score. Take this time to reduce your outstanding credit by paying accounts down or off as soon as you can. The lower your outstanding credit, the higher your credit score will get and the easier it will be to get a loan.

The USDA credit score requirements are among the easiest to qualify for, yet finding a lender that will accept lower credit scores could prove to be difficult. If you have less than average credit, it is best to work on improving it before applying for any type of loan, including the USDA loan; this will provide you with the greatest chance at getting approved for a loan that is very beneficial for many borrowers.

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What’s the Difference Between USDA Loans and FHA Loans?

March 9, 2016 By Justin McHood

USDA loans and FHA loans might seem to be the same type of loan, after all they are both backed by the government, but upon closer inspection, you will see vast differences. While both loans are made to make it easier for first-time home buyers to get into a home, they can both be used for the subsequent purchase of a home, as long as no other home is owned at the time. That is where the similarities end – both loans target a different demographic. If you qualify for a USDA loan, you might find slightly lower rates and less fees, which could result in a more affordable mortgage.

Geographic Locations

USDA loans are written strictly for homes in rural areas. According to the USDA, rural means an area that is outside of the city limits and has a population of less than 20,000 people. This means that many areas throughout the United States are considered rural, even if you would not normally consider the area as such. FHA loans can also be used in this area, but will not carry the same benefits as the USDA loan. FHA loans are not restricted by the same boundaries – they rely more on the qualifications for the loan, such as employment, income and even credit score.

Down Payment

The FHA loan is always known as the loan with little down payment requirements; the minimum is 3.5 percent of the loan amount. This is the perfect loan for people that are having a hard time saving enough assets to put down on a home. The USDA loan can make the FHA loan down payment requirement seem high as it requires no down payment in order to qualify for a loan though. There is no minimum and even if you are financing 100% of the loan, you can roll in the closing costs into your loan, increasing the LTV above 100%.

Income Guidelines

Typically for a loan, such as is the case with the FHA loan, the more income you make, the better off the terms of your loan. A higher income usually means a lower debt-to-income ratio which means that you are a lower risk for the bank. The USDA loan, on the other hand, is strictly for those borrowers that do not have a high income; it targets those with low to middle-of-the-road income. This is done in an effort to build up the rural areas with people that have lower income rather than provide a loan with no down payment requirements to just anyone. If you make more than 115% of the median income for your area (every area differs based on the cost of living) you are not eligible for the USDA loans.

Employment History

Both the USDA loans and FHA loans want to see a consistent work history. You might find a little more leeway with the USDA loans as long as you are earning an income and are within the same industry, but they will not deny you strictly based on your employment history. The only negative with the USDA loan is if you do not have a 2-year history of employment, you will not be able to factor any bonus or commission income into your income, which could hurt your debt-to-income ratio. On the other hand, it might not matter as the USDA is more forgiving when it comes to higher debt-to-income ratios as long as there are compensating factors.

Credit Score

Both the USDA loans and FHA loans are lenient when it comes to credit scores; or at least more lenient than conventional loans. FHA loans do require a minimum credit score of 580; if the score is less than 580 and above 500, an FHA loan might still be available, but the minimum down payment requirement will be 10%. The USDA loan does not have a minimum credit score and will typically work with any borrower that can show that they can afford the new loan.

Fees for USDA Loans and FHA Loans

Both USDA loans and FHA loans have fees in addition to your standard closing costs and processing fees. The USDA charges a guarantee fee, which is how the USDA is able to help lenders in the face of a default of one of their loans. This fee is charged upfront and annually. The upfront fee is 2.0% of the loan amount and the annual fee is .5% of the loan amount, which is equally divided among your payments per year. The FHA loan charges an upfront fee as well; this amount is 1.75% of the loan amount. The annual Mortgage Insurance Premium for the FHA loan is .85%. As you can see the upfront fees are higher on the USDA loans, but the annual fees are lower for it when compared to the FHA loans.

There are some similarities and many differences between the USDA loans and FHA loans. Both loans are backed by the government, but only the USDA loan is guaranteed – the FHA loan is insured. Both loans offer many benefits to borrowers, making it much easier to get a home loan. If you live in an area where USDA loans are not available, the FHA loan would be the next best alternative.

What’s the Current Status of USDA Rural Home Loans?

March 4, 2016 By Justin McHood

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.

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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.

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