Why would you want to know how to qualify for a USDA loan? This home loan program from the U.S. Department of Agriculture (USDA) Rural Development offers loans with no down payment requirement, low interest rates, and flexible credit standards to qualifying borrowers who are purchasing a qualifying property. In fact, these loans are often referred to as one of the housing market’s best-kept secrets. If you’re planning to buy a home, a better question may be, “Why wouldn’t you want to know how to qualify for a USDA loan?”
How to Qualify for a USDA Loan
Since its inception under section 502(h) of the Housing Act of 1949, the USDA Rural Development loan program has helped over one million people become homeowners, according to My Mortgage Insider. While it’s run by the USDA and designed to support homeownership in rural communities, it’s not just for agricultural workers. The program is flexible enough to benefit a wide range of Americans in both rural and suburban areas. The key thing to remember is that both the borrower and the property must meet certain requirements before a lender will approve one of these government-backed loans. Here’s how to qualify for a USDA loan.
A Qualifying Borrower
As SmartAsset indicates, USDA guaranteed loans are open to both first-time and repeat homebuyers and available as either 30-year fixed-rate or 15-year fixed-rate mortgages. Although there isn’t a hard limit on the size of these loans, borrowers are capped by their household’s debt-to-income ratio. Unless a borrower has an exceptional credit history, the USDA program generally sticks to a 41 percent debt-to-income ratio; monthly mortgage payments are traditionally limited to 29 percent or less of a borrower’s monthly income. If you’re interested in using a USDA guaranteed loan, then you’ll need to meet the following requirements:
- Borrowers must be a U.S. citizen, a U.S. non-citizen national, or a qualified alien.
- Borrowers must be legally capable of incurring a loan.
- Borrowers cannot be disbarred or suspended from participating in federal programs.
- Borrowers must commit to using the property as their primary residence.
- Borrowers must demonstrate their willingness to meet their financial obligations and repay any debts.
- Borrowers must have an income that is no more than 115 percent of the median income for their area. To find the income limit for your county, check out this USDA map and table.
A Qualifying Property
Location is an important concern in real estate, and that’s especially true if you want to use a USDA guaranteed loan. Why? The property also has to qualify for the loan, and its location is a major factor. The USDA’s home loan program may be intended to support growth in areas deemed less populated, but a surprisingly large portion of the U.S. meets the program’s qualifications. As The Mortgage Reports notes, an area can be eligible if it has a population of 20,000; in special cases, this rises to 35,000. As a result, roughly 97 percent of the map of the U.S. is eligible for the program.
Is a property that you’re considering eligible for a USDA guaranteed loan? If you have the address, you can find out by visiting the USDA Income and Property Eligibility Site.
Applying for a USDA Loan
How do you get a USDA guaranteed loan? While these loans are backed by the USDA, they’re made by private lenders. That means that anyone who wants to use one to fund their home purchase should start by finding a reputable, USDA-approved lender in the area where they plan to buy, according to SmartAsset. Getting preapproved helps you find out how much you’ll be able to borrow. Once you find the right property and make a winning offer, your application will be reviewed. Then, the property will be appraised. If everything lines up, the lender will submit your application to the USDA for final approval.
At PrimeLending of Denver, we’re ready to guide you toward the perfect loan product for your needs. With the expertise to help you move forward confidently, a wide range of loan products that makes it easy to find one suited to your needs, and a streamlined process that gets the job done right the first time, we can help you reach your homeownership goals. Whether you’re interested in buying, renovating, or refinancing, contact PrimeLending of Denver today to get started.