USDA property eligibility Archives

Do Condos Qualify for USDA Loans?

May 31, 2018 By JMcHood

Are you looking to buy a home in a rural area? You might just be eligible for USDA financing, which provides you with a 100% loan and flexible guidelines. Many first-time or even subsequent homebuyers want to know if they can buy condos with this type of financing, though. Is it strictly for single-family homes?

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Luckily, you can buy a condominium with a USDA loan. The catch, though, is that you’ll have to abide by some different rules pertaining to the property itself.

What Rules do Condos Have to Follow?

Because condos are multi-unit buildings that have units owned by many people and common areas overseen by the HOA, there are some different rules you’ll have to follow.

If the development has already been approved by another entity, such as HUD, FHA, VA, Fannie Mae or Freddie Mac, it’s automatically eligible for USDA financing
The lender may still want to inspect the property themselves to make sure the certification by one of the above entities is certain. The lender takes on a big risk assuming the development is approved by one of the above entities.
The lender must have adequate proof that they made a good faith effort to ensure that the condo is approved by one of the above.

Qualifying for a USDA Loan on a Condo

A lender will go through the same qualifying process when you buy a condo or a single-family home. First, the lender must determine that you are eligible for USDA financing. This program is only for borrowers whose total household income is less than 115% of the average income for the area.

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The USDA determines this by looking at your total household income. This includes everyone, not just the borrowers. If you have relatives living with you that make income, their income counts. If your household income doesn’t exceed the limit for the area, you are eligible.

Once you prove your eligibility, the lender will determine if you qualify for the loan. This is different. Now you will use your income and that of your co-borrower. You must prove that you can afford the loan payments and stay within the USDA’s allowed debt ratios of 29% housing and 41% total debt.

In that debt ratio, the lender must include any homeowner’s association dues you must pay. This gets included in your front-end ratio. In addition to the HOA dues, the lender must consider the principal, interest, taxes, and homeowner’s insurance, which you must buy even if you live in a condo.

Along with meeting the debt ratio guidelines, you’ll have to prove that you have at least two years of employment history and a history of stable and/or increasing income. You must also prove that you don’t have any defaulted federal debt and that your credit score is at least 640.

Keep in mind that each lender can have their own rules as well. These rules stated here are the USDA rules. The USDA doesn’t fund the loans, though; the lender funds them. Because of this, lenders can add more rules onto what the USDA requires. For example, a lender may require a higher credit score or a lower debt ratio when funding a loan for a condo. It helps to decrease the risk of default, which is already higher because condos have a tendency to have higher default rates.

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How do you Find USDA Approved Homes?

January 18, 2017 By JMcHood

The USDA program offers borrowers a great way to purchase a home with no down payment. They also have competitive interest rates and flexible underwriting guidelines. The USDA formed the program for low-income families who live in rural areas. Their definition of rural may differ from yours, though. It does not mean you have to purchase a home out in the middle of nowhere. Instead, the USDA defines rural as communities with fewer than 10,000 residents. It is their hope that by providing financing in these areas, the rural communities will begin to thrive. Just how do you find the USDA approved homes? Here are some simple tips.

The Property Eligibility Map

Let’s start with the fact that the USDA does not have a list of USDA approved homes. Instead, they have a map they provide on their website to help you determine the areas eligible for USDA financing. Each home must go through an inspection in order to determine if it is eligible for USDA financing. To start, though, you need to find a home within a designated USDA area. It does not help you to look at homes outside of this area only to find out they do not qualify for the program.

The map is simple to use:

Navigate to the USDA website
Enter a specific property address if you have one
If you don’t have an address, enter the state or zip code you intend to live
The map will pop up with shaded areas that are ineligible; the other areas are eligible
You can play around with different areas by dragging the pinpoint from one area to the next to find eligible areas for USDA financing

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USDA Approved Homes

Once you find an area eligible for USDA financing, you have to find a home that passes the USDA inspection. A few of the requirements include:

The size must be average for the area
No attached commercial buildings are allowed
No part of the land can be used for income production
The property must have direct road access
There must be properly working utilities
Water tests must pass state and local requirements
The home must be immediately livable
All local building codes must be met
There must not be any termite damage
There must not be any mold damage
All plumbing and electrical systems must be in working order

Two professionals will look into the quality of the home – the appraiser and inspector. The appraiser and inspector both help the lender and USDA determine the eligibility of a home. The appraiser determines the fair market value of the home as well as looks at its general condition. This is to help the lender determine if the home is worth the loan you need. The inspection dives deeper into the inner workings of the home to determine if there are any issues that would prevent USDA approval.

Personal Requirements for USDA Loans

Keep in mind, even if you find an approved home, you have to qualify for the program yourself. The USDA eligibility works a little differently than any other program. In this case, the less money you make, the better your chances of qualifying. The USDA looks at your entire household income before determining your eligibility. .This differs from qualifying for the loan itself. The first step is determining if you qualify for the program itself. The USDA requires you to disclose the income of every person in your household, not just those on the loan. They then allow you to deduct from your income for the following situations:

$480 for every child under the age of 18
$480 for every child over the age of 18 who is a full-time student
$480 for every disabled person living with you
$400 for every elderly person living with you

These deductions come right off of your gross monthly income for the entire household. The final number is how the USDA determines your eligibility. If you go to their income eligibility website, you can determine how your household’s income compares to the maximum for your area.

Once you know your household qualifies, you will use your income and that of your co-borrower to qualify for the loan. The USDA has very flexible underwriting guidelines:

Credit score of at least 640 for automated approval, but you can have a lower score and use manual underwriting
Debt ratios around 29/41
Late mortgage/rental payments cannot exceed 2 in the last 3 years
The last 12 months must show on-time mortgage/rental payments

You do not have to verify assets with the USDA loan because you do not need to put any money down on the home. They provide 100% financing for those who qualify for the program. Keep in mind, however, that you will pay mortgage insurance up front as well as an annual mortgage insurance which your mortgage servicer divides equally amongst your 12 monthly payments.

Finding USDA approved homes may take you a little longer than any other program because of the complexity of the program’s requirements. Starting with finding an area that is eligible for USDA financing is a great place to start. Once you narrow the area down, you can look at specific properties. Keep in mind that you may have delays or difficulty with the process once the appraisal and inspection are underway. Having these processes completed early on can help to prevent delays in your closing. If the appraisal or inspection do prevent you from using USDA financing, you will minimize the amount of time you waste on the process.

The key is to have patience and use as many resources as possible when looking for approved USDA homes. There are many homes out there that meet the requirements; it just might take a little picking through the weeds before you find one eligible for the program.

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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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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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Property Eligibility

June 13, 2013 By Justin McHood

How to find out if the property you are looking to buy is eligible for a USDA loan?

USDA loans are extremely flexible and offer numerous advantages compared to other sources of residential financing available to new home buyers A new home can be purchased with no down payment as long as the requirements concerning the income, debt ratios of the borrowers and the property location are met. For a property to be eligible for a USDA mortgage loan, it has to be located in a USDA designated rural area.

To find out for yourself, visit the USDA website. It provides the latest maps that clearly indicate the eligible and ineligible areas. While the website is the most reliable and conveniently accessible source for information concerning USDA property eligibility, it does contain a disclaimer regarding the validity and accuracy of the data shown on their maps. The final determination is made by the local Rural Development office.

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Steps to determine USDA Property Eligibility:

Visit the USDA’s Rural Development site by clicking here.
On the left hand side, click on the appropriate property type located under the “Property Eligibility” header. Here you will see options for Single Family Housing, Multi Family Housing, Business Programs, Satellite Grant Programs and Water & Environment. If you are a buying a single-family residential home, then click on Single Family Housing.
Upon clicking, you will be presented with a general disclaimer concerning the validity and accuracy of the data available on the site. Just click the Accept button and proceed.
Now you shall be taken to an interactive map of the United States. On the top portion, you will be able to enter the address in the “Find Your Address” search box.
Enter the address of the property you are considering for purchase with a USDA loan and determine its eligibility.

The map will show results clearly indicating the eligible and ineligible areas. If you don’t have a specific address in mind, then just enter the zip code or the city, state in the address search field. This is extremely handy for those interesting in determining the eligible areas prior to initiating your home search.

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The USDA website also has verbal description of the eligible areas. Only those counties that have a combination of eligible and ineligible areas have a description link. All the properties in non-linked counties in a given state qualify for USDA loans. Click on the relevant state link to access the USDA property eligibility areas.

1.	Alabama
2.	Alaska
3.	Arizona
4.	Arkansas
5.	California
6.	Colorado
7.	Connecticut
8.	Delaware
9.	District of Columbia
10.	Florida
11.	Georgia
12.	Hawaii
13.	Idaho
14.	Illinois
15.	Indiana
16.	Iowa
17.	Kansas
18.	Kentucky
19.	Louisiana
20.	Maine
21.	Maryland
22.	Massachusetts
23.	Michigan
24.	Minnesota
25.	Mississippi
26.	Missouri
27.	Montana
28.	Nebraska
29.	Nevada
30.	New Hampshire
31.	New Jersey
32.	New Mexico
33.	New York
34.	North Carolina
35.	North Dakota
36.	Ohio
37.	Oklahoma
38.	Oregon
39.	Pennsylvania
40.	Rhode Island
41.	South Carolina
42.	South Dakota
43.	Tennessee
44.	Texas
45.	Utah
46.	Vermont
47.	Virginia
48.	Washington
49.	West Virginia
50.	Wisconsin
51.	Wyoming
52.	American Samoa
53.	Federated States of Micronesia
54.	Guam
55.	Marshall Islands
56.	Northern Mariana Islands
57.	Palau
58.	Puerto Rico
59.	U.S. Minor Outlying Islands
60.	Virgin Islands of the U.S.