Applying for a USDA loan works much the same as applying for any other loan. Your lender will need a large number of documents to help determine if you qualify for the loan. The USDA loan works a little different than any other loan, though, because the USDA has the final say in your loan approval. It’s not just the lender that looks over your loan and decides if you qualify or not. The lender must send the full package to the USDA for final approval.
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It’s very important that you provide the lender with everything the USDA needs or it could just delay your loan process. Learn the documents you need by reading below.
We’ll start with the income documents because they are often the most important. These documents prove to the lender that you can afford the loan. The USDA/lender will require several types of proof to ensure that the income you say you make is actually what you receive. You’ll provide:
- Paystubs covering the last 30 days of employment (4 if you are paid weekly, 2 if paid bi-weekly)
- W-2s for the last two years (include W-2s from all jobs you have held)
- Tax returns if you are self-employed or more than 25% of your income comes from commission
- Reward letters from any government-paid income that you receive, such as social security income or disability income
- Court ordered documents if you receive any child support or alimony and will use it to qualify for the loan
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Generally, you don’t need assets to qualify for the USDA loan. But any money you use to pay the closing costs or any other fees must be sourced. In other words, the lender needs to make sure the funds come from your employment or even a gift source. Their main concern is to ensure that the funds are not from any type of loan.
- Bank statements for the last 2 months (make sure to include all pages)
- Investment statements for the last 2 months (if you will use these funds to pay for anything pertaining to the home purchase)
- Proof of the cashed earnest money check
- Letter of explanation for any large deposits in your bank accounts over the last 2 months (the lender needs to make sure the funds did not come from a loan)
- Gift letter – If any of your funds will come from a relative or employer as a gift, you’ll need a letter from the donor proving the gift
- Proof of gift funds from donor’s source – The gift donor will need to provide copies of his/her bank statement to prove that the funds are not a loan.
Before you can close on your USDA alone, you must prove that you can homeowner’s insurance. You’ll need a Declarations Page from the insurance company that shows the coverage amount and type. You’ll also need proof of payment for the first 12 months of coverage.
The USDA and your lender will require these documents at the very least. Each lender has specific requirements, which may affect any other proof you must provide the lender. Basically, you’ll want to give the lender enough to prove that you can afford the loan on your own without the help of funds from outside sources. While gift funds are acceptable on USDA loans, funds from any type of loan are not. Your goal should be to prove to the lender that all funds used are approved funds and that you have stable income and employment to help you make the mortgage payments.