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USDA Loan Rates, Lenders, Guidelines and Information

Can You Buy a Fixer-Upper With a USDA Loan?

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You found the perfect fixer-upper, but you need USDA financing because of your low income and no money for a down payment. The USDA usually requires homes to pass their appraisal, which includes their minimum property requirements.

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Can you buy a fixer-upper with your USDA loan? You might be able to, but you must meet certain requirements.

The Home Must be Livable

One of the USDA’s largest rules is that you must be able to live in the home while it’s being renovated. If the home is beyond inhabitable, you won’t be able to use USDA financing on it. While you live in the home, the work must be completed within six months. If the work will take more than six months, you can’t use USDA financing.

What constitutes a livable home will vary by lender. Obviously, you need to be able to live in the home without fear of any dangers or obstacles making your daily life difficult. There cannot be the presence of things like lead paint or asbestos, as they don’t make for a livable home.

The Home can Only Need Minor Renovations

If the home needs a major overhaul, you can count USDA financing out of the running. The home can only need minor renovations that cost no more than 10% of the loan amount. On a 150,000 loan, the renovations cannot cost more than $15,000.

While this does limit the work you can do on a home, it still leaves you plenty of room for renovation. While knocking down walls or adding rooms might not be feasible, you may be able to do things like replace a deck, paint the exterior of the house, or put on a new roof, just as a few examples.

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You Don’t Handle the Payments

Your lender will handle the payments to the licensed contractors working on your home. The contractors will have a contract that the lender will approve that will include a distribution of funds schedule. The contractor must then meet the dates on the contract in order to receive the funds.

The lender will do a final inspection to ensure that the contractor did everything according to the agreement before they will release the final payment. You must also sign off on the work saying that it is satisfactory according to the agreement as well.

You May Need a Contingency Fund

Some lenders require you to have a contingency fund to make sure you have money should an emergency arise. It’s impossible for contractors to figure out everything that could go on when they renovate your home. If something comes up that will cost a lot of money to fix, you’ll need the contingency fund to rely on if you don’t have enough in the money borrowed for the home.

Contractors Do the Work Most of the Time

A majority of the time, contractors are necessary to do the work on your home. If you are capable, though, you may be able to do the work yourself, but your lender must approve you to do so. In order to qualify, you must be able to prove not only that you have the knowledge to do the work, but also that you have the time to get it done within six months. The work that you do also cannot exceed 10% of the loan amount, just as is the case if a contractor does the work.

The bottom line is that you can buy a fixer-upper with USDA financing, but it must be a minor fixer-upper. You can’t buy a home that is completely unlivable that needs thousands upon thousands of dollars of work. If you find a home that’s doable, but needs a facelift, though, it could be a good candidate for USDA financing.

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Affordable Mortgages for Rural Homebuyers

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If you are a rural homebuyer, you have a distinct advantage when it comes to finding the right mortgage. The USDA loan offers exceptional benefits, but only if your income doesn’t exceed the USDA’s guidelines. If you don’t qualify for a USDA loan, the next best thing is the FHA loan.

Both programs are government-backed and have flexible guidelines. They give you affordable mortgage options to help the rural homebuyer get the home they want.

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Below we’ll discuss each loan option in detail.

USDA Loans for the Rural Homebuyer

USDA loans are known as the ‘rural homebuyer loan.’ That’s probably because you can only use USDA loans in rural areas. No, this doesn’t mean you have to live out in the middle of cornfields. The USDA bases their rural requirements on the latest census tract, which could be many years ago depending on when you apply.

If you do find a home within their boundaries, you’ll have to meet the following requirements to get approved:

  • Household income – The first and most important requirement is the amount of your household income. It cannot exceed the USDA’s limits. The USDA calculates the income of every adult living in your home, whether they are on the loan or not. They then compare that total income to average for the area. If your total household income exceeds 115% of the area’s income, you can’t use the USDA loan.
  • Qualifying income – Once you are ‘eligible’ for the program, you have to qualify. Lenders derive this income from the borrower and co-borrower, not the entire household. You’ll have to meet the USDA’s debt ratio guidelines, which are 29% housing ratios and 41% total debt ratios.
  • Credit score – You’ll need at least a 640 credit score for the USDA to consider your loan application. However, if you have a 660 score or higher, you’ll get more streamlined treatment during the underwriting process.
  • Owner occupancy – You’ll have to prove that you’ll live in the home you purchase with USDA financing as your primary residence. Basically this means you can’t have another residence in the near vicinity. If you do, it can’t be a home that you could comfortably live in right now. For example, if you want to buy a 3-bedroom home to accommodate your family, you can’t have a 3-bedroom home nearby already. You do not, however, have to be a first-time homebuyer.

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If you meet these requirements, you’ll have the benefit of getting a home with no down payment. The USDA even allows you to roll closing costs into your loan if the value of the home exceeds the purchase price.

FHA Loans for the Rural Homebuyer

What happens if you don’t meet the income requirements for the USDA loan? You can turn to the FHA loan. Still a government-backed loan, this loan option has similar guidelines, but requires a higher down payment.

The FHA loan requires a 3.5% down payment. However, the funds can come from you or as a gift from a relative or employer. Either way, you have to make sure you can put that 3.5% down, plus cover the closing costs.

If you can manage the down payment, you’ll need to meet the following requirements:

  • Debt ratios – The FHA doesn’t have a maximum income limit to qualify for the program. Instead, they look at your debt ratios. They allow a maximum 31% housing ratio and 43% back-end ratio.
  • Credit score – The FHA is slightly more lenient when it comes to credit scores. According to the FHA, a credit score as low as 580 qualifies for the program. However, many lenders require slightly higher standards to make sure they are not taking on a big risk. Because the FHA guarantees the loans, though, you may find lenders willing to go as low as 580.
  • Owner occupancy – Just like the USDA loan, you must prove you will live in the property as your primary residence. FHA loans are not for investment or second homes. It’s strictly a program that guarantees funds for lenders in order for low to middle-income families to purchase a home.
  • Stable income – The FHA prefers if your income is stable for the last two years. If you did change jobs and/or income during that time, an increase is much better than a decrease. The lender will likely use a 2-year average of your income if there was a decrease in order to make sure they don’t approve you for a loan you cannot afford.

Mortgage Insurance

Both the USDA and FHA loans charge mortgage insurance upfront and on an annual basis.

  • USDA loan upfront mortgage insurance – Borrowers pay 1% of the loan amount at the closing for a USDA loan
  • FHA loan upfront mortgage insurance – Borrowers pay 1.75% of the loan amount at the closing for an FHA loan.
  • USDA loan annual mortgage insurance – The USDA charges 0.35% of the outstanding principal balance each year. They then charge the borrower 1/12th of that amount each month.
  • FHA loan annual mortgage insurance – The FHA charges 0.85% of the outstanding principal balance each year, charging the borrower 1/12th of the balance each month.

The main difference for a rural homebuyer between the two programs is the total household income. If you are eligible for the USDA loan, it may make more sense as it’s often less expensive. If you don’t qualify, though, the FHA loan is a great alternative as it has similar flexible underwriting guidelines and low fees.

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Do You Qualify for Section 521 Rental Assistance From the USDA?

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The USDA has rental assistance available for rural rental housing under Section 515 and farm labor housing under Section 514 and 516 of the Housing Act. This subsidy in rent is given to eligible owners of the above projects on behalf of their tenants.

Get to know this rental assistance for rural housing for very low and low-income families so they can continue to occupy affordable, decent homes in rural America.

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Rural Rental Assistance 101

This rental assistance is a project-based subsidy prioritizing multi-family projects for tenants with low or very low income. The goal for them to pay rent that should not exceed 30% of their adjusted household income.

Under Section 521, USDA RD will pay the rent on behalf of these tenants to eligible property owners whose projects must (i) be financed using Section 515 or Section 514/516 loans, and (ii) established on a nonprofit or limited profit basis.

As of June 2016, there were 14,480 Section 515 and 514 projects with a combined total unit number of 434,317 according to Cityscape: A Journal of Policy Development and Research.

The 2017 paper presented data from the Rural Housing Service that administers multi-family and single-family loans for the period ended June 2016.

Based on this research, rural rental and farm labor (on-farm and off-farm) projects predominantly house families occupying 284,245 units. They are followed by the elderly with 137,465 rental units. The rest of the units have mixed occupants.

Out of these approximately 14.5K housing projects, 12,177 are authorized to receive rural rental assistance. This represents 283,307 rental housing units with subsidized rents.

Eligibility for Rental Assistance

These rental assistance payments, which form the difference between the tenant’s contribution or 30% of his/her adjusted income and the monthly rental rate, will go toward the project’s operating expenses.

Because these payments will go directly to the property or project owner, it is the property owner who will apply for this subsidy from USDA RD. However, tenants who are eligible to receive this kind of assistance may seek the property owner to secure it for them.

Eligibility of tenants occupying the rental units means having an income below 50% of the area median income ‒ very low income, or between 50% and 80% of AMI ‒ low income.

Learn more about USDA loans here.

USDA RD will prioritize projects with very-low-income tenants. So for new housing facilities, the percentage of low-income tenants who are receiving assistance must reach 95%. On existing projects, the percentage of new tenants with very low income must be 75%.

Rental Assistance for Rural Housing

By income, Section 515 and 514 residents who are receiving rental assistance from the USDA and other federal agencies have reached more than half a million.

As of June 2016, there were 541,237 rental assistance recipients as broken down into:

  • 447,783 of which are USDA Section 521 assisted residents.
  • 51,317 are receiving HUD project-based Section 8 assistance.
  • 33,350 are receiving HUD Housing Choice Voucher.
  • 7,974 are receiving other public rental assistance/reduced rents.
  • 633 are receiving other private rental assistance.

Homeownership may be an elusive dream for some rural residents but they can still live in a home that is safe, decent, sanitary, and affordable, too.

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Rural Home Living: What are the Drawbacks of Buying a Rural Home?

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Everything has its upsides and downsides. If you’re thinking about buying a rural home, expect that with all the advantages of purchasing one, there are bound to be some drawbacks, too.

Living in a rural area comes with a promise of privacy and an abundance of natural resources. However, every home buyer should know that the drawbacks that come with rural living are as important as its advantages.

Knowing these things will help you decide whether or not buying a rural home would be worth your investment. Since we have already identified its advantages, here is a list of rural living’s drawbacks.

There’s more travel time

In the city, it’s normal to have places that are within walking distance from your home. However, it’s not always the case if you’re in a rural area.

If long drives are not something you have the patience for, perhaps you should rethink about buying a rural home. Compared to urban locations, rural areas will generally mean more driving and less walking.

Roads might not always be in their best conditions

Rural roads would not be as maintained as the once in urban areas. There will be times when roads in rural areas won’t be in the best shapes. This especially true during winter.

Which is why many families invest in snow tires for them to easily maneuver the road in the presence of snow and ice.

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Events and festivities are limited

There will always be town and county fairs in rural areas. There will be community events, concerts, and other festivities for the town locals.

We’re not saying that there won’t be any big events that will happen in these areas. However, major events and concerts will be rare. It won’t be as common as those in the big cities.

Internet connections might be slower

We’re all at a point in time where the internet becomes a necessity. It’s brought by our need to connect to the world and the continuous advancement of technology.

People now think that having high-speed internet connections is necessary for today’s economy. Slow connections would become counterproductive especially for businesses that rely heavily on the internet.

Dealing with wild critters

Living in rural areas would sometimes give you surprises like having to deal with wild critters. It could be raccoons, rats, skunks, coyotes, and other common critters that run wild in rural areas.

If you think about it, these can just be some minor disadvantages as there are ways to keep them out of your home as much as possible.

Water and power sources

Keep in mind that a lot of rural homes rely on wells rather than municipal water. If you’re not careful, these can give you problems in the future.

If you’re buying a rural home, make sure to invest in water testing and treatments to make sure that you have potable water reserves.

Power sources in rural areas could sometimes be unreliable. You will need to have a backup power source if you’re planning on buying a rural home.

A reliable backup power generating system would save you from power outages which can happen during harsh weather conditions such as hurricanes or snowstorms.

All hope is not lost

These drawbacks are something that can be dealt with especially if rural living is something you really want to pursue. Research and expert consultation will always come in handy.

Contact your real estate agent to get insights on how to address these disadvantages. It’s important to always know what to expect for you to know how to deal with them one by one.

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Getting Your Rural Home Ready for the Frosty Season

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Soon, our autumnal world will transform into a winter wonderland. We have all been looking forward to the sweater weather because summer was just too hot this year.

For those who are looking forward to winter, wait no further. Winter is coming, and it’s not going to be a light jacket affair.

According to weather analysts, winter season temperature will reach subzero levels to a chilling negative 30 degrees Fahrenheit (negative 34.4 degrees Celsius).

Above-average snowfall is expected to bury the Northeast. You might want to invest in a new snow shovel or a good snow removal machine. If you’re into skiing, this is going to be the perfect season for you.

While you look forward to the coming frosty season, you may want to consider doing a quick inspection to see if your house ready to brace the cold weather.

Preparing your rural home for the winter as early as now will save you from a headache of repairs before the first snow falls. Here are a few winter weather tips to prepare your abode.

  1. Get your heating system ready and running.

Have a technician inspect your home’s heating system as early as now. Make sure to have it cleaned. If it needs some repair, act on it quickly. Having your heat pump or furnace inspected will also be beneficial to your family’s health. Any carbon-monoxide leakage may cause serious health issues.

  1. Clean out the Gutters.

Clogged gutters can be the cause for major damages. Routinely cleaning your gutter will help you find leaks or rust buildup. Having it repaired right away will save you from the horrors of molds and rotting wood.

You must also drain out all outside hoses and shut off outside water valves. Water in these pipes can condense and freeze. You don’t want to know what will happen next.

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  1. Insulate, insulate, insulate.

A house isn’t enough to keep the cold out. You need to insulate the walls and the attic. Your hot water heater and water pipes in the basement must also be wrapped with insulation blankets or sleeves to prevent the water from freezing.

Of course, get your warm blanket and wool socks ready. You need to keep yourself cozy and warm, too.

  1. Have the roof inspected.

There will be a lot of snow this year. Snow on the roof can be too heavy for the entire structure.

Have a professional inspector check your roof if it can sustain the weight of a heavy snowfall and if reinforcement is necessary. They will also inspect for any damages so you can have it fixed right away. You may also want to have water-repellent membrane installed under the roof covering.

  1. Have foundation cracks, and rotten wood repaired or replaced.

If you’ve learned to live with the cracks on the walls or patches of rotten wood on the ceiling, it’s time you had them fixed. Cold weather can be a culprit to creating bigger damages. You must act now while damages are repairable.

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How Can USDA LOANS help?

The USDA has a special program for eligible homeowners who want to repair their homes. The Section 504 Home Repair program provides very-low income homeowners access to funds to improve, repair, or modernize their houses.

The same program provides grants to seniors belonging to the very-low-income bracket. The fund must be used to remove health and safety hazards.

These home loans are available all throughout the year as long as there is still funding. applications are processed on a first come first serve basis.

How much financing can a borrower get? For those applying for the loan, up to $20,000 can be borrowed. For the grant, it can be up to $7,500 of assistance. Loans and grants can be combined for a total of up to $27,500 in funds.

If you are located in an eligible rural area, you may qualify for the home repair loan. Take advantage of this program. Learn more about its qualification and documentation requirements.

Preparing your rural home for winter essential to that you and your family remain warm and safe. If you are having some struggle financing these necessary improvements, the USDA Housing Repair Loans and Grants can help.

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Get to Know the Advantages of Buying a Rural Home

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Buying a home of your own is not just a big financial investment. It’s a personal one, too. That’s why choosing where you want to live should be something you have to think over.

Some people want to live in the city while others like to settle down in the countryside. These are just some of the deciding factors when you look for a home of your own to purchase.

If you’re thinking about living in rural areas, you should be ready to point out the ups and downs for you to know what to expect when buying a rural home.

There’s a lot of land to take advantage of

Suburban homes might come with a little area put up a small garden, a swing set, or a front porch but rural properties often come with a lot of land for the owner to use for different purposes.

You can start a small hobby farm or use it to build a bed and breakfast, hoping it will turn into profit in the future. The possibilities are endless.

Keep in mind that there’s a lot of work to do with an abundance of land. You have to invest in taking care of it depending on how you want to use it.

You can expand your home

Buying a rural home means you have the ability to expand your property in the future thanks to the abundance of land that comes with the property.

In the suburbs, expanding might be a little hard to do because of certain restrictions but rural homes often give you a chance to add an extra wing to either let your parents live with you or use it to however you want.

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Home prices come cheaper

Purchasing a home, in general, is not cheap. However, if you have to compare the price of a suburban home to a rural home, the difference can be significant.

Homes in the suburbs have a high demand which is why the prices are higher than homes in rural areas. Sometimes, there are more choices with rural homes compared to houses in the suburbs.

Flexible mortgage financing

Cheaper home prices aren’t the only thing that’s good about buying a rural home. Getting a mortgage is also easier thanks to USDA financing.

These loans can finance homes in rural areas with zero down payment, low One thing that you also need to prepare for are the different costs that come with home buying. Home buying costs are not just limited to the home’s sticker price or the mortgage payment.closing costs, and flexible guidelines.

However, keep in mind that USDA loans are meant for low- and moderate-income borrowers. It means that your household income should not go beyond 115 percent of the average income for the area.

Taxes are lower

If you don’t want to see big cuts from your income just for high real estate taxes, you should consider buying a rural home since they come with lower real estate tax rates.

Real estate taxes are often higher if you’re living in the city. Sometimes, people think about moving to the countryside because of that reason.

Healthy Living

There are a lot of reasons why living in rural areas are generally healthier than living in the city. Pollution is rampant in cities and that could be a huge stressor in your daily life.

If you want some peace of mind and some quiet time, it’s hard not to find the idea of living in a rural home appealing.

Of course, buying a rural home also comes with a number of downsides and those are something you also need to take into account. In the end, finding a home to build your life in is entirely up to you.

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Meet Section 504 Loans and Grants for Rehabilitation of Rural Homes

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Section 504 loans and grants may be the USDA’s answer to the FHA’s 203k rehab loans. These loans help homeowners improve their rural home to make it more decent, sanitary and safer to live in. Homeowners aged 62 and older also have access to Section 504 grants to adapt their homes for health and safety reasons.

From purposes to eligibility for Section 504 loans, let’s discuss how this program works.

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What Are Section 504 Loans?

If you have a home located in a rural area and want to improve it, you could apply for a Section 504 loan. The program assists households with very low income in their home repair projects, for as long as their homes remain modest.

Section 504 loans can be up to $20,000, payable in 20 years at 1% interest rate. The amount of assistance received under Section 504 grants is $7,500.

Section 504 grants are for homeowners aged 62 and older who can’t afford to repay the entire loan amount. Grants are not to be repaid unless the home with the Section 504 grant is sold within three years of grant approval.

Main uses of 504 funding include:

  1. Make general repairs to improve or modernize the home.
  2. Remove “hazard” or “major hazard” areas in the home. Hazard is defined by the USDA as “a property condition that jeopardizes the health or safety of the occupants” but the property can still be fit for habitation. A major hazard, on the other hand, presents a condition so severe that the house becomes unfit to live in.
  3. Repair or remodel houses that improve access for household occupants with disabilities.

The Section 504 program is pretty flexible as to how its funding is used, but it’s clear on what not to use the funds for. Specifically, the following uses of 504 loans are not allowed:

  1. In helping build a new home.
  2. In making repairs to a home whose condition continues to have major hazards even when the proposed repairs have been made. Shop and compare mortgage loans here.
  3. In moving a mobile or manufactured home to another site. Notably, Section 504 loan can be used to repair or improve a mobile home on a permanent foundation.
  4. In paying any off-site improvements, other than for costs incurred in relation to the installation and assessment of utilities.
  5. In refinancing any debt or obligation that is incurred by the borrower before applying for a Section 504 loan.
  6. In paying fees to entities for packaging loans.
  7. In providing site preparation such as sodding, seeding, or other land preparation activity.
  8. In landscaping.
  9. In installing concrete or asphalt driveways although if improvements that would make the home more accessible and usable for household members with disabilities.

Eligibility for Section 504 Loans

Applying for Section 504 loans follows the same process as that of Section 502 loans. As to the eligibility requirements of Section 504 loans, take a look at the following:

1. Income. One’s adjusted household income must be within the very-low income limit of the area. Low-income households can’t qualify under the program,

2. Credit. The credit history of Section 504 grant applications doesn’t have to evaluated, except when an applicant has an outstanding judgment entered by a federal court. In that case, the applicant becomes ineligible for the grant. As to Section 504 loan applicants, they must have a credit history that shows their ability and willingness to repay debt obligations. Nonetheless, credit requirements on Section 504 loans are less stringent than on Section 502 loans.

3. Assets. Asset reserves required for Section 504 loans are identical to that of Section 502 loans but assets that are convertible to cash in 90 days or less are included in the calculation of non-retirement assets.

4. Repayment. The borrower must show a reliable income to support the debt obligation. If that income is not sufficient to fully repay the entire amount, he/she can apply for a grant to cover the portion not borrowed.

5. Ownership. The property must be owned and occupied by the borrower, although exceptions apply.

Are you eligible for a Section 504 grant or loan?

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Buying a Rural Home? Here Are Things You Should Consider

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Rural House

Whenever you decide to apply for a USDA loan, you’d immediately think about looking for a rural home.

It’s hard to deny that buying a house in rural areas has its own charm. Sometimes it’s quite attractive to settle down somewhere away from the hustle-bustle of the city life.

And as far as USDA loans are concerned, these mortgages are one of the very few that offer zero down payment. That’s why a lot of borrowers are actually interested in applying for one.

Keep in mind that homes within USDA-eligible areas are what’s considered for a USDA home loan. If you’re looking for some peace and quiet in these locations, maybe this is the right mortgage for you.

However, the house you want to buy should be something you should think about carefully. You should look into different factors in your home that would make you want to live in it.

Accessibility

Every homeowner should be content in the fact that getting home from wherever the day leads them is easy and accessible. Make sure that getting to your house won’t be a problem for you.

Ask around if the roads that lead to them are well maintained. Also, determine if the road that leads to your property is private or if you share with nearby property owners.

Get to know the different conditions the roads around the property has. Country roads can be tough to deal with due to snowfall or heavy rains.

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Neighborhood

Since you’re in a rural area, perhaps the odds of dealing with noisy neighbors are slim. But there are other reasons why you should consider the property’s neighborhood, too.

But dealing with loose livestock or noisy machinery could arise in rural areas. Other than that, areas around you could be used for hunting. If you want to live in the countryside, make sure these things won’t be a problem for you.

Water Supply

In rural areas, the water supply is different than in homes in urbanized locations. Most of the time rural homes rely on wells rather than municipal water.

Make sure that the water supply is safe from contaminants and other dangerous elements. You can invest in water treatment technology just to be on the safe side.

Electricity Source

It’s wise to consider investing in a backup power-generating system because harsh weather conditions like storms could knock out the electricity in rural areas.

Other than that, you can also consider installing fireplaces. They come in handy during cold temperatures like storms and snow if the power is out.

Locale

One more thing you should factor in when deciding on buying a rural home is the property’s locale.

Is there a nearby hospital or a school? Maybe You’re going to build your life in your new home so it would be nice if your property is near areas like that.

Other than a safe neighborhood, being nearby key locations like hospitals, schools, malls, tourist spots, parks and the like is also a good factor to look into.

The Bottom Line

Ultimately, choosing the right home for you is something should have characteristics that are perfect for you. But you home is not the only things you need to think about.

This is why it’s important to check different factors around the property’s area when buying a rural home through USDA home loans. In the end, the choice is yours. Therefore you should make your decision worthwhile.

See if you qualify for a USDA home loan here.

How to Locate Eligible USDA Loan Areas

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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.

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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!

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