The USDA loan process isn’t as daunting as it sounds. Before you jump in headfirst, though, ask your loan officer the following questions. They’ll help you be more informed about the process and understand how to proceed.
Am I eligible for the program?
This is the very first question you should ask. This is different from qualifying for the loan. Qualifying means you have the finances to afford the loan. Eligible means you fall within the USDA’s parameters. The USDA looks at your total household income. This is more than the money you and your co-borrower make. It means anyone over the age of 18 living in your home that makes money. They must disclose their income. If this total exceeds the USDA maximum, you aren’t eligible.
It’s best to find this out right away. This way you don’t waste time on the USDA process only to find out you aren’t eligible.
The USDA does allow specific allowances, you should know, though. They are as follows:
- $480 for every child under the age of 18
- $480 for every child over 18 attending school full-time
- $400 for every disabled person
- $400 for every person over the age of 62 living with you
What homes are available in my area?
You can’t buy just any home with the USDA loan. You must buy a USDA approved property. The USDA makes it easy to find properties with their eligibility map. You can also ask your loan officer. An experienced USDA loan officer can help you determine the right home for you. The home must be located in a rural area. However, this doesn’t mean cornfields and cows. It could be right outside the city limits. Check the map and consult with your loan officer to narrow down the right area for you.
How much money do I need for closing?
The USDA loan doesn’t require a down payment. That doesn’t mean you don’t need money for the closing. The USDA loan does charge closing costs. You have options, though. The closing costs are similar to those charged on any other loan. You can expect to pay between 2 and 5% of the loan amount in closing costs. But, you have options:
- The seller can pay your closing costs. The USDA allows the seller to pay up to 6% of the loan amount in closing costs.
- You can wrap the costs into the loan. You can only do this if the home’s value exceeds the purchase price, though.
Discuss your options with your loan officer so you can make the USDA loan as affordable as possible.
What does the USDA appraisal require?
Government-sponsored loans often have stricter appraisal requirements. The USDA loan is no exception. However, their main concern is safety and livability. Any issues found during the appraisal must be fixed. It’s not a definite reason to deny the loan. For example, if the roof is leaking, the seller must fix it. If there is termite damage, it must be repaired. As long as the issues are resolved, the USDA usually allows the loan to go through.
How long does the USDA loan process take?
Many people think the USDA loan process is long and drawn out. It’s not much longer than any other loan program, though. It depends on several factors:
- The lender’s workload
- The USDA’s workload
Ask the loan officer what the bank’s turnaround time is at the time of application. They should be able to give you a good ballpark estimate of the timeframe. You should then ask about the turnaround time of the local USDA office. Each office has a different workload. During busy times, you may wait a few weeks. Slower times, however, usually only require an additional week. The USDA simply approves everything the lender already did. If the lender does their job, the approval process will be simple.
Is my credit score high enough?
This is a tricky answer. Technically, the USDA requires a minimum credit score of 640. However, lenders can grant an exception. They must perform a manual underwrite on the loan, though. This means more scrutiny on your qualifying factors. Some lenders do this and others don’t. A lender that you apply with and that pulls your credit should be able to tell you right away what options you have. If your credit score isn’t high enough, you can try another lender. Some lenders don’t mind lower credit scores and manual underwriting.
How does the USDA loan compare to other loan options?
If you have a little money you could put down on the home, compare all of your options. For example, if you have 3.5% of the purchase price, you may be eligible for the FHA loan. Talk to your lender about your various options. Then compare their costs and interest rates to make a decision. There is no right or wrong decision between the 2 programs. It’s a personal decision based on what you can afford.
The USDA loan process is rather simple. It sounds complicated just because of the two entities involved in the process. The USDA does have the final say, but with a full underwriting package, it should be accepted. As long as you use a lender experienced in USDA loans, you should be okay. Make sure you inquire about a lender’s experience with the program. Ask them how many USDA loans they have written. You can even ask how many they deny. This way you know your chances of approval and whether you should shop around or not.
The USDA loan offers the opportunity to purchase a home with no money down. You may even get away without paying any closing costs. Shop around and find the loan that works the best for you and your situation!