Do you worry that you don’t make enough money to qualify for a loan? Do you think you are stuck renting for the rest of your life?
The good news is there are options out there that are made especially for people just like you. USDA loans are strictly for low-to-moderate income families. You can actually make too much money and not qualify for this loan.
Keep reading to learn about this great benefit.
What are USDA Loans?
USDA loans are 100% loans for borrowers that make less than 115% of the average income for their area. You can find out where you stand by visiting the USDA’s website. You must use the money to buy a rural property, as determined by the USDA.
If your total household income doesn’t exceed the limit for your area, you can obtain 100% of the purchase price of the home in a rural area. You will pay a small upfront funding fee (1.0% of the loan) and annual mortgage insurance (0.35% of the loan balance) in exchange for this benefit. However, the qualifying guidelines are very flexible for this loan program.
Are you Eligible?
Before you can determine if you qualify for the USDA loan, you must prove your eligibility. Using the links above, you can determine your eligibility.
Keep in mind, the USDA counts total household income when determining if you are eligible. Any adult within your household that makes money must disclose their income. The USDA uses this total minus any allowances to determine your eligibility.
You qualify for allowances if you have children, the elderly, or disabled living with you. Children and the disabled provide you with a $480 deduction per child or disabled person. Any elderly people living with you provide you with a $400 allowance per person.
If you are eligible, you must then qualify for the USDA loan.
Qualifying for USDA Loans
Qualifying for USDA loans is much easier than most other programs. You need the following:
- 640 credit score
- Maximum front-end debt ratio of 29%
- Maximum back-end debt ratio of 41%
- Stable income
- No defaulted federal loans
The only income you may use to qualify for the loan is that of the borrower and co-borrower. You cannot use the total household income you used to prove your eligibility for the program. However, the guidelines are often flexible enough that it’s easy for low-to-moderate income borrowers to get approved.
How USDA Loans are Different
- They provide 100% financing. This is the most notable difference. Even FHA loans require borrowers to put down at least 3.5% of the purchase price of the home. With USDA loans, you don’t need any money down. You can even get gift money or use seller concessions to pay the closing costs, leaving you with no money required at the closing table.
- The interest rates are usually lower. The USDA keeps the interest rates low for low-to-moderate income borrowers. This is another part of the reasons that they keep their program only for those that really need it. Higher income borrowers that are ineligible can use other financing programs, including the FHA loan.
- The closing costs are lower. The USDA also encourages lenders to keep the closing costs down for these borrowers so that the loans can be affordable for them.
- The USDA only allows moderate housing. The USDA doesn’t provide 100% financing for luxurious homes. This program is for borrowers that would otherwise not be homeowners if they couldn’t have USDA financing. This way it helps keep your choice of home within the limits of what you can afford.
- You can’t be eligible for any other program. This is the unique requirement of this program. If you are eligible for any other financing, including FHA financing, you cannot use the USDA program. It’s strictly for those that cannot get approved for another financing option due to a lack of income.
The USDA loans provide ample opportunity to secure financing for a home that you would otherwise be unable to purchase. While you do have to live in a rural area, the USDA is fairly liberal with their definition of rural. This gives you access to decent housing without the need for a down payment or possibly even cash for closing costs.