USDA Home Loan Eligibility: All You Need to Know

USDA loan, also known as the USDA Rural Development Guaranteed Housing Loan Program, allows homebuyers to get 100 percent finance for a home purchase. The interest rate of the home loan program is usually much lower than the conventional down payment loans, and the borrower doesn’t need to pay a prepayment penalty. Eligible rural and suburban home buyers can apply for USDA home loans in Texas and other states across the U.S.  It is, however, important for applicants to know the eligibility criteria, before they file their application.

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Eligibility for USDA Home Loan

An individual needs to meet three requirements to be eligible for the USDA loan:

Location of the House

The foremost requirement to apply for USDA loan is that the new home needs to be at the designated USDA rural area, which generally is a town with 20,000 or less population. There are, however, a lot of areas in the U.S. which qualify for USDA loan.

Credit History

The underwriter would review the credit history to ensure that the USDA loan applicant is paying the bills on-time. Lenders don’t consider old negative history, if the individual has been able to re-build the credit in the past 1 year. The applicant is expected to pay off the collection amount before the closure of the new home purchase process.

Total Household Income

USDA lenders usually ask for two-year employment history or consistent income of the applicant. If the applicant is a student, the two-year requirement is taken as an exception. The lender doesn’t require an approval of assets for USDA loan, but doing so might help the homebuyer resolve any credit related conflicts.

Beyond the credit and property requirements, here are some other eligibility criteria to qualify for USDA loan:

  • The new house needs to be the primary residence of the buyer.
  • The loan applicant needs to have legal capacity to incur any loan obligation.
  • The applicant needs to be a U.S. citizen, U.S. non-citizen national or a qualified alien.
  • The applicant should not be barred or suspended from participating in federal programs.

A Few Last Words

USDA loans don’t require an individual to make a down payment but do come with hefty fees including a fee of 2 percent on the loan amount upfront and 0.5 percent annual fee on the loan amount. If an individual is looking for a property in the suburban or rural area, has a decent credit score and the ability to pay monthly EMI and the annual fees, USDA loan could be the right option to purchase a home without a huge down payment.

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