Do you ever wish to live in a rural/suburban area? With its eligibility map, the USDA loan is for property buying and construction needs. And if you want to buy a house in these types of areas, the USDA loan offers excellent income limits. So get your calculator out for the USDA loan may just be the best option for you.
The U.S Department of Agriculture offers a convenient housing loan program for urban/rural areas. And USDA loans are part of this housing loan program. They offer 100 percent financing, as well as excellent mortgage rates and premiums.
The USDA loan program started in the ’90s. In the year 2017, it became part of the Rural Development program. Besides a rural community, it can also be helpful to lower-income and credit score borrowers.
This program was enacted in accordance with section 502(h) of the Housing Act of 1949. Its goal is to induce homebuyers to inspire economic growth in rural America. So if you want to enjoy this program, here are details about the USDA loan.
The USDA Loan
The United States Department of Agriculture backs the USDA loan. It also backs the USDA construction loan. The USDA guarantees the mortgage while private lenders fund it. If interested, using a USDA loan calculator is a good start.
The USDA loan, like VA and FHA loans, has less risk because of the government backing. So lenders are assured that the government will pay a portion of the loan amount on behalf of the borrower. Consequently, this happens once the borrower is unable to do so. And this is also why lenders are confident enough to require less down payment and loan rates.
USDA home loans are for suburban and rural homebuyers. And they are meant for people who are not qualified for a traditional mortgage. The U.S. Department of Agriculture aims to assist people to have their own homes in rural and urban areas.
This is the reason why the USDA income limits are a bit restrictive. And if you are considering applying for one, there are several types of USDA loans to consider.
Different Types of USDA Loan
In considering applying for the USDA loan, there are three types to choose from. Buying your own rural home is made more flexible with different options offered. So if you don’t know whether to get the USDA construction loan or the standard one, read on,
Direct loans refer to the USDA-issued mortgages under the Housing Act of 1949 Section 502. These mortgages are not just guaranteed by the USDA. However, they are from the USDA and not private lenders.
USDA offers these loans to borrowers who have low to very low income. And USDA income limits will come into play. Income limits will depend on the area and region of the property where you plan to live.
Borrowers can only be qualified for this loan if the income is between 50 to 80 percent of the area’s median income.
Home Improvement Loans
Home improvement loans come in the mixture of loans and grants for home upgrades and repairs. And this USDA construction loan can grant up to $27,500, including $20,000 of loan and $7,500 in grants.
The USDA income limits for borrowers with this loan must be under 50 percent of the area’s median income. And repayment for the loan can be accomplished for 20 years. Use a USDA calculator to figure out the accurate annual payment and interest.
USDA-guaranteed loans are mortgages backed by the USDA and issued by private lenders. It requires a minimum to zero down payment and low-interest rates.
The USDA guarantees the loan in case borrowers default on the payments. So mortgage insurance will be required for when a low down payment. If you want to know if your area qualifies for this loan, use a USDA eligibility map. More information about this map can be found in the eligibility section.
The USDA income limits for this loan should have the area’s median income of at most 115 percent. However, for this loan’s maximum amount, there is nothing stated. So far though, loan amounts of more than $300,000 are uncommon.
Are you still in doubt whether choosing the USDA loan is the right decision? Check out these advantages.
Benefits of Choosing this Loan
You don’t need a USDA loan calculator to see how to benefit from this mortgage. Here are the advantages you can get from the USDA loan.
- 100-percent Home Purchase Price Financing
- Backed by the U.S. Department of Agriculture
- Options for Both Upfront and Monthly Mortgage Insurance
- Potential for Below-market Loan Interest Rates
- Zero to Low Down Payments
- 15 & 30-year Fixed Terms
The USDA construction loan is also available for rural and suburban areas. And the same goes for its standard type. It is affordable and convenient compared to standard loans. However, borrowers need to qualify for the USDA income limits.
Do you want to learn more about the guidelines when choosing the USDA loan? Read on for the entire process and how it works.
Processing Your USDA Loan
When you choose the USDA loan, there is a step-by-step process to follow. And there are also many terms to learn, from USDA eligibility map to USDA property eligibility.
The process of applying for a USDA loan is like conventional mortgages. But the difference lies in the thorough eligibility check. From the borrower to the property, there are guidelines that must be considered. Getting the help of an expert is the first step.
Ask the Help of a Mortgage Expert
Winners’ Mortgage is a specialist when dealing with mortgages when performance counts. You simply need to visit the site to be guided step-by-step through the process. Get started by completing the “Get Started” Client Questionnaire loan application here.
While top-drawer Winners’ Mortgage will coach you through the process, it is good for you to understand it. And in order to know what to expect, here are the steps of the USDA loan process.
Applying for this mortgage may need the use of a USDA loan calculator. Before it comes to that, you need to go through the first step of the loan process. While the following may seem like a complicated process, you don’t need to do it alone. Your fully-trained Real Mortgage Consultant at Winner’s Mortgage will help you through it. Here are the requirements so you know what to expect.
You don’t only answer questions like “am I qualified for this loan?” but also answer other common eligibility questions. Here are the eligibility sections you will encounter:
- Loan Credit
- Loan Income
You might need to use a USDA eligibility map for the location. Meanwhile, the USDA property eligibility will decide on the qualification of the property. This loan is also limited to your primary residence.
To apply for a USDA loan, borrowers have requirements and qualifications to follow. And this USDA loan is created for low to moderate-income households. So even if it’s meant for an agricultural setting, it is not only limited to that.
The USDA construction loan is for property purchases and renovations. Borrowers must be an American citizen or a legal permanent resident to be eligible. And they should qualify in terms of their credit and income.
It is important to prove your stability and capability to pay the USDA loan. And your willingness and ability to pay will play a role in your application. So, one of the ways to prove this is through your excellent credit history.
The U.S. Department of Agriculture does not require a minimum credit score. Borrowers with bad credit scores are still qualified for the USDA loan. However, our debt-to-income ratio will be considered if this is the case.
Borrowers with a 640 credit score and higher are eligible. Those with less are also eligible but with more requirements. Some of which include:
- Credit References
- Rental Payment Histories
- Utility Payment Histories
For people with bad credit history, it is better if you prove valid reasons for this bad history. A valid reason for this is a circumstance you have no control over like medical emergencies.
Another way to prove your capability to pay the USDA loan is a good loan income. The income eligibility of a borrower can be checked using a USDA eligibility map. Income eligibility is dependent on your area.
If you have a stable income, it’s a good proof for repayment. You can qualify based on your household income in ratio to your area’s median income. You may need a USDA loan calculator to get this right.
When checking for income eligibility, you have to consider the following:
- Stable Income
- Debt-to-Income Ratio
- USDA Income Limits
A stable and dependable income can be proven through the following:
- For self-employed & commission income: 24 months of income tax returns
- For regular wage and salary employees: Recent pay statements and last 2 years of W-2 statements
More than a stable income, it will be futile if you have many debts. The debt-to-income ratio of the borrower must not be more than 41%. Check your USDA loan calculator and learn what your DTI ratio is.
USDA Income Limits
USDA income limits is another factor that you should consider in income eligibility. The standard USDA loan income limits depend on the number of household members. More details about the USDA income limits are available in the section.
In qualifying for the USDA income limits, there are terms you need to know about. Learn about annual household income and adjusted annual income. These terms are important in computing your income.
The status of the property plays a role in applying for the USDA loan. For USDA property eligibility, these are qualified:
- Modular/Manufactured Homes
- Short Sales Homes
- Foreclosed Homes
- New Construction Homes
Properties that generate income are not eligible for the USDA loan. If they are no longer producing income, they may qualify. This is based on the USDA property eligibility.
Another factor to consider in USDA property eligibility is the property’s condition. The property needs running utilities (e.g. water and electricity). It also needs to be clean and safe based on USDA guidelines.
Finally, it is relevant that the property serves as the primary residence of the borrower. Direct access to the driveway, street, or road is also part of the USDA property eligibility.
The location of the property is another consideration. This goes both for the USDA construction loan and its standard counterpart. A vital factor in the loan process is that the proposed property should be in a rural area. You can use the USDA eligibility map to check if the property you want is in a rural area.
A rural area has the definition of having less than 20,000 residents. There are also some cases where areas with 35,000 residents are qualified. The rural area location is a factor for the USDA property eligibility.
Many suburban areas are also qualified for this number of residents. In fact, 97% of the land of the United States qualifies in this definition.
While the USDA eligibility map will help, you should also know more about the USDA income limits. There is linked eligibility between your income and the location of the property. The USDA considers your income in relation to the median income of the area.
For your qualification, you can use a USDA loan calculator. Read the section about USDA income limits to learn more about this. That is to say, a USDA eligibility map will also be helpful in the entire process.
Picking a Lender
Both the USDA standard loan and construction loan need a lender. After qualifying for the USDA loan, the next step is picking a lender.
The USDA provides guidelines for lenders who can fund the loan. Credible Winner’s Mortgage can help to connect you with a qualified USDA-approved lender. You will have the chance to choose the most compatible lender for your lending needs.
Picking a lender through the experienced Winners’ Mortgage will provide security to the borrower. Choosing a lender approved by the USDA will provide validity to the loan process.
The most important step is the application with Winner’s Mortgage here. Don’t gamble. Bet on a winner.
You have the option to apply for the loan directly to a private lender or through Winners’ Mortgage.
The next step is to complete the documentation. You have to provide the documentation to back up your credibility and qualification.
Some of the documentation you can provide for proof includes the following:
- Social Security card
- Recent Paystub (1-month worth) – for employed borrowers
- Tax Returns (Past 2 years) – for retired or self-employed borrowers
- Personal Financial Statement
- State Photo ID
- Earnest Money Check
- Homeowners Insurance Policy Quote
- Termite Inspector’s Report
The list above is simply an example of the possible documentation you might need. Requirements will depend on the USDA loan type, whether it is a USDA construction loan or not. Your lender will also play a major role in the documents needed.
When you apply with Winner’s Mortgage, you will receive an initial list of the documents you need to provide.
With the USDA loan, processing time varies on how busy the market is. All documents will be filed to the USDA for approval. Lenders are responsible for sending the documentation to the USDA.
Terms & Their Definitions to Learn
You might need a USDA loan calculator for computations. To start though, learning about the different terms is a great first step.
Loan Mortgage Insurance
The USDA loan requires mortgage insurance in order for it to be guaranteed. The mortgage insurance is a protection for lenders in case of payment defaults. Here are the USDA loan mortgage insurance rates:
- Loan Guarantee Fee: 1% (for the purchase and refinance)
- Monthly Guarantee Fee: 0.35% (prorated on a monthly basis with your loan payment)
Compared to conventional loans, the rates for the USDA loan are lower. This goes the same with the USDA construction loan. They could be paid in cash but usually added to the loan balance.
Mortgage rates can be confusing, and you might need a USDA loan calculator for it. Mortgage insurance protects the lender if the loan needs to be foreclosed.
USDA income limits are maximum income amounts set as a qualification for the mortgage. The USDA loan is for low to moderate-income households. The limits depend on household size and property location.
When considering the household size, USDA income limits may vary every year and by geography. Here is a link for the list of income limits all over the country.
Annual household income should be at most 115% of the local median income. This refers to the projected total salary of the household’s adults. The salary of all adults inside the home is considered in the annual household income.
The adjusted annual income is accounted for by the USDA income limits. It is the difference when the valid deductions are subtracted from the annual income. A USDA loan calculator will be helpful in these computations.
The USDA income limits for borrowers cannot be more than 15% of the area’s median salary. A USDA eligibility map will help in figuring out if a property qualifies for the loan.
USDA Repayment Income
USDA repayment income refers to the ability of the borrowers to repay the USDA loan. Lenders will look at the borrower’s repayment income through the DTI ratio.
The debt-to-income ratio provides the creditworthiness of the borrower. Lenders use it to decide whether to approve a loan application. The standard DTI needs to be at most 41%.
Therefore, the borrower should not spend more than 41% of his income on debt repayment. People with higher DTI can be qualified but with more requirements from the lender.
Loan rates are part of the consideration when applying for a mortgage. The USDA loan is popular for its low-interest rates when comparing it to conventional loans. In fact, the USDA loan rates range from 0.5% to 0.75%.
USDA-approved lenders issue the rates for the loans. A USDA loan calculator can help with the computation. Lenders consider the borrower’s credit score and income when issuing loan rates. The credit score though is not a requirement.
The USDA loans offer 15 to 30-year terms with fixed rates that are dependent on the lenders. It also offers zero down payments, but you can pay a down payment if you want to reduce your monthly payment.
If you still have additional questions about the USDA loan, here are some FAQs.
Can I refinance my USDA loan?
Yes, you can refinance your USDA mortgage. There is a USDA streamline refinance program you can apply for. The program skips credit and income verification that leads to a faster closing.
How will I know if my area is eligible for USDA?
There is a good tool to check USDA property eligibility. You can check out the USDA eligibility map to figure out if your area is qualified.
Can I use the USDA loan for home renovations and repairs?
USDA loans can be used for renovations and repairs as long as they are eligible for changes. Some of the eligible changes include:
- Windows/Appliance Replacement
- Driveways/Walks Preparation
- Broadband Service Installation
- Gas, Electricity, Water, & Sewer Connection
- Energy-efficiency Improvements (Solar Panels & Roofing)Changes to Assist Household Members with Physical Disabilities
Can I cash-out my USDA refinance loan?
No, the USDA loan can only be used for purchases and refinances.
Can I apply for the USDA loan even if I am self-employed?
Yes, self-employed borrowers can qualify for the USDA mortgage. They only have to provide proof of self-employment income. This is through at least 2 years of federal tax returns.
Am I qualified for a USDA loan if I am a repeat buyer?
Definitely, you can qualify even if you are not a first-time buyer. The USDA loan is for first-time and repeat buyers.
Do I have to use escrow for my insurance and taxes when in a USDA mortgage?
Yes, you need to use escrow when dealing with your USDA mortgage. As a result, borrowers are required to escrow their insurance and taxes together with a lender.
Is the USDA loan a good mortgage to consider?
The USDA loan is more affordable in terms of interest rates. However, there are more specific qualifications for the borrower and property. Consequently, you can check out the USDA property eligibility for more details on this.
It provides many options for borrowers despite stricter eligibility checks. Properties have specific details to be qualified. For example, they should be located in specific areas. You can check it through the USDA eligibility map.
Homebuyers with low to moderate-income are the target of the USDA loan. The mortgage does not require any down payment. The mortgage rates can be also low in comparison to other loan programs. This makes the mortgage easier more affordable and easier to access.
In the area of monetary benefits, a USDA loan is definitely worth exploring. If you want to start anew in a rural community, this is the mortgage to try out. Even with the construction of your home renovations, the USDA loan is an excellent option.