5 Common Questions About USDA Loan Answered

USDA loan with zero down payment benefit is a popular home loan for home buyers with no military service history. Affordable payment plans, low interest rates, 100 percent financing and low-credit eligibility criteria are a few reasons that make USDA home loans a better option than most of the other conventional loans. If you are looking for an easy way to buy a home, put USDA above the other available options. In this post, we cover five common questions that home buyers usually ask before obtaining a USDA loan.

Question 1: What is the qualification criteria for a USDA loan?

The location of the property is the most important qualification criteria. The applicant can obtain a loan for a house that is within the USDA-eligible geographic area. Borrowers making up to 115% of the median income of the area where they want to purchase a home are eligible for the USDA loan. A family of four, for instance, planning to buy a home in Los Angeles area has the annual income limit of $98,200.

Question 2: Is it necessary that the property should be in good condition for USDA loan approval?

The condition of the property is another vital qualification criteria, if you are applying for USDA loan. The property needs to meet the minimum standards to get loan approval. An appraiser inspects the condition of the property to states the same in the appraisal report. The qualification standards are almost the same as for FHA loan.

Question 3: Can I purchase a manufactured home with USDA loan?

The buyers in most cases qualify for a USDA loan if they are purchasing a new manufactured home. There are, however, a few scenarios where the lender might approve USDA home loans for a pre-existing manufactured house. If the current owner of the house already has USDA loan on the property, you might be able to get a nod from the lender.

Question 4: Is there any minimum credit score required for a USDA loan?

Applicants with a credit score of 660 or above usually have the highest chances of getting USDA grants. The score was set to a minimum 640 on December 1, 2014, but it did not affect most of the applicants as many lenders already had the minimum score set at the same level. Borrowers with no traditional credit history are also eligible for USDA loan, provided they show their rental history, insurance payments and utility payment records.

Question 5: What is the term of the USDA loan program?

A guaranteed loan (guaranteed by the third party) earlier had a fixed payment tenure of 30 years, and borrowers were given the option to reduce the tenure to 15 years in September 2014. Direct loan has two repayment options for 33 years and 38 years. If the income of the borrower is above 60 percent of the annual monthly income, the USDA approves a tenure of 33 years. A USDA loan for manufactured home has a loan term of 30 years.

Last Few Words

Backed by the United States Department of Agriculture, USDA loan has several benefits such as low interest rates and zero-percent financing, which make it a more affordable choice over traditional loan options. More than 166,000 families availed the benefits of USDA loan in 2015. Before you apply for a USDA loan in Texas or any other state, make sure to have a thorough understanding of all the eligibility criteria, pros and cons of USDA loans process and payment plans, which makes it easier to qualify for the approval.

USDA Home Loan Texas – Zero Down Payment Financing

USDA home loans are part of the USDA Rural Development Guaranteed Housing Loan Program guaranteed by the U.S Department of Agriculture. The loan is available to buyers looking to invest in property located in a qualified rural area of Texas. The best part of the USDA loan program is that it is available to home buyers with below-average credit scores, with the option of zero-down-payment and low interest rate, as compared to conventional loans available on the market. This brief read gives you a 360 degree view of the USDA home loan program to help you make an informed decision. So let’s begin.

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100 Percent Financing for Non-city Dwellers

Homebuyers looking for 100 percent financing have two loan options – VA loan from the Department of Veterans Affairs (available to qualified veterans nationwide) or the USDA loan (also known as Rural Housing Loan/ Section 502 loan).  Originally designed to help rural Americans buy homes, today the USDA loan program is available for a wide range of qualified suburban neighborhoods across the U.S. Homebuyers interested in homes in qualified USDA areas must meet USDA income eligibility requirements.

USDA Loan Benefits

Unlike conventional loans, USDA home loans offer low monthly private mortgage insurance premiums( two percent of the total loan amount). The insurance fee is added to the loan amount at the time of closing the same as costs of repairs and improvements. Due to a repayment guarantee from the USDA Rural Development Office, lenders have confidence in borrowers and are willing to provide attractive loan terms to qualified borrowers. Other benefits of the program include:

  • Competitive 30-year fixed Interest Rates
  • Flexible credit guidelines
  • No maximum purchase price
  • Ability to finance upfront PMI

Furthermore, as there is no particular loan limit, home buyers can borrow more money with a USDA mortgage, contrary to other conventional VA and FHA loans.

Know your Eligibility Status

As with any type of home loan, borrowers planning to finance with USDA must meet the set eligibility criteria to qualify for the loan, such as income, property, credit, and area. Some of the qualifying criteria set out by USDA include:

  • The buyer must buy a home in a USDA-eligible area.
  • The household income may not exceed 115% of the area’s median income.
  • The property must serve as a primary residence to the borrower.
  • Buyers are eligible to apply for the loan after two years of claiming bankruptcy.
  • The buyer must have a decent credit score

In addition, the buyer must not own any other property in close proximity of the new property.

The Bottom Line

The USDA loan program allows low-income group people to realize their dream of homeownership by availing zero down payment and low interest rates, as compared to other conventional home loans. Nevertheless, before making a final decision, it is important to consult a loan expert who can guide you through the borrowing process. A mortgage lender can tell you whether you meet the program requirements, and if not, they can suggest a better alternative.

5 Prerequisites to Obtain a USDA Home Loan

Despite the fact the United States Department of Agriculture or USDA home loan program makes it possible to fulfill the homeownership dream of prospective home buyers, it has certain requirements that they should meet. These requirements vary from the location to the property type and have been designed to ensure that only people who meet these criteria, obtain a loan from the USDA. In this blog post, we’ll discuss five such prerequisites that applicants should meet to qualify for the USDA program.

1. Debt to Income Ratio (DTI)

After the amendments made in the USDA’s policy on December 1, 2014, if you are applying for a USDA home loan, you are required to maintain a debt-to-income ratio that should not exceed 29 percent. Your debts, including credit card, total house payment, and other loans, shouldn’t exceed 41 percent of your gross monthly income. Borrowers, however, with a good credit score (usually 680+) and some reserves in the bank, or who have debt-to-income ratio not exceeding 29 percent can take the assistance of USDA’s Automated Approval System, GUS, to get their loan approved.

2. Funding Fee

Though USDA borrowers are not required to pay any Private Mortgage Insurance or PMI, they need to pay an upfront funding fee that varies between 2 and 2.75 percent of the total loan amount. The funding fee, like PMI, helps lenders cover costs in case borrowers default on the loan. This fee, however, is considerably less than the usual PMI fee.

3. Minimum Credit Score Requirement

Until the recent update in December 2014, credit score was not a qualifying criteria for borrowers of USDA home loans, be it Texas, or any other state in the US. In the current situation, however, applicants require to maintain a minimum credit score between 620 and 640 if they apply for a loan through GUS. In case you aren’t taking the help of the USDA’s automated loan approval system, you should have a credit score of more than 641.

4. Income Limitation

When talking about the income requirements, the USDA has certain income levels for different states, which applicants shouldn’t exceed in order to qualify for a loan. Your total household income should be equal or below the income limit set by your USDA-designated area. In addition, borrowers should have assets less than what are required to apply for other home financing programs.

5. Property Requirements

USDA provides homes loan for properties that borrowers intend to use as the primary residence. The loan isn’t meant for any investment property. In addition, the property you are looking to purchase should fall under the area that the Rural Department has listed as “rural” in their instruction document.

Word of Advice

The USDA home loans, whether in Texas or any other state, provides significant benefits over conventional loans. Some of the key benefits are the option of no-down payment and the flexibility to finance 100 percent of home including the closing costs. It has, however, certain stringent requirements that applicants must meet to qualify for a loan. Consulting a mortgage expert can help you learn more about these prerequisites as well as help streamline the entire mortgage financing process. Besides, a loan officer can also suggest if there’s any other loan program that better suits your needs.

Are you eligible for a USDA Home loan?

USDA Loan Zero down payment

Zero down payment, low EMI and rolled in repairs; these are the benefits of applying for a USDA home loan. They are affordable and available to every US citizen but there are certain criteria that you need to meet to qualify for this dream loan. So, are you eligible for a USDA home loan in Texas? Let’s first learn about USDA Home loan.

USDA Home Loans in Texas
Getting a home loan in Texas is as easy as applying for a home loan anywhere in USA. The only special requirement for this loan is to apply it for a home in the USDA marked territory. US government plans to promote the economies of the rural areas and in order to achieve that they have defined USDA loans which are available to those who want to settle down in locations with a population of 20000 and less. America has many such suburbs and rural areas which the general public is unaware of.

Who Qualifies for a USDA Home Loan?
Qualification criteria for a USDA home loan is quite simple. USDA home loan is backed by US department of Agriculture. This loan was planned so as to bring in more people to rural areas and in turn give the local economy a boost. A smart move in itself, USDA home loan is also beneficial to the buyer financially. Let’s start with who qualifies for USDA home loans in Texas.

Location of the Property
US Department of Agriculture has meticulously defined certain areas in the country where an American apply and get the benefits of USDA home loan. If a property lies under USDA classification, it is certainly eligible for the loan.

Clean Credit History
Anyone with a clean credit history is eligible for a USDA home loan. Once a person applies for a loan, the department checks the person for credit his credit history. If a person has had a clear record for last 12 months, the loan is sanctioned.

Sufficient Household Income
USDA checks the total household income of the person applying for a loan. These loans do not need any assets for approval and 2 year record of consistent income is sufficient to qualify for the loan. Student applicators don’t have to show the 2 year records as well.

USDA home loans Texas are an easy way to settle down in USA as compared to any other loans. They are cheap, have very few pre-requisites and are open to every US citizen who can afford the installments. It is the right choice of a person wants an affordable loan and doesn’t mind settling down in the rural parts of the country.