USDA Rural Loans

USDA Guaranteed Home Loan

 

Highlights of the program:

  • No Down Payment
  • No Mortgage Insurance
  • No Cash Reserves Required
  • No Prepayment Penalty
  • No Seller Contribution Limit
  • No First Time Home buyer Requirement
  • No limitation on source of funds for closing costs
  • No stated maximum loan amount; maximum loan based on repayment ability
  • Loan up to 100%* of appraised value plus the guarantee fee… not the lesser of Sale Price or Appraisal
  • New and Existing Homes OK
  • Fully amortized 30-year fixed rate loan
  • 100% gifted closing costs or down payment assistance is permitted
  • Loan amount can include closing costs and repairs up to appraised value

What you should know about a USDA Home Loan

A USDA Guaranteed Loan is a Government insured Loan Program. It is important to know that these loans are only be funded Direct Lenders that meet federal guidelines. The USDA Program is available for purchase and refinance of existing USDA loans.

What is the USDA Rural Development?

U.S. Department of Agriculture mission area responsible for economic and community development in the small towns and rural areas across America.

What is the USDA Funding Fee?

There is no mortgage insurance premium due or monthly mortgage insurance but the USDA loan does have a 3.5% funding fee to guarantee the mortgage. This fee can be financed into the loan amount.

What does the USDA Guarantee do for home owners?

When the federal government agrees to guarantee a loan, lending institution can help home owners in financial crisis while incurring less risk.

The history of the USDA

In April of 1935 President Franklin D. Roosevelt signed Executive Order 7027 establishing the Resettlement Administration. That agency relocated destitute families stricken by the Depression, restored soiled areas, and provided modest emergency loans to farmers for land and equipment. Later in 1946, Congress established the Farmers Home Administration (FmHA) to expand the original agency’s function beyond far, credit. Congress authorized FmHA to provide financing in rural areas for housing, community facilities, and business ventures.

Today, Rural Development is the venture capitalist for rural America, built on legacy of these Depression- era agencies begun over 70 years ago!

USDA Property Eligibility

USDA makes it very easy to determine which properties are located in an eligible area. USDA Property Locator is a great tool to use when trying to find out if a property is eligible for the USDA program.

USDA Income limits

Another difference you will notice if you decide to apply for a USDA home Loan is that there are income restrictions. You can actually make too much money for this loan product. The USDA will review two types of income for qualifying for their home loan;

  • Adjusted Household Income
  • Repayment Income ( Gross Earnings )

What do the USDA Rural Development Home Loan guidelines consider “Adjusted Household Income”? This would be best described as gross income MINUS any eligible deductions.

Here is a list of 7 eligible deductions for qualifying for a USDA Rural Development Home Loan.

  • $480 deduction for each child under the age of 18
  • Verified childcare expenses
  • $480 deduction for disabled dependents 18 years old or older
  • $480 deduction for a full time student 18 years old or older
  • $400 deduction for any eligible elderly family member
  • A deduction for the care of children 12 years of age or younger, to the extent necessary to allow a member of the family to be gainfully employed
  • A deduction of the amount of which the aggregate of the following expenses of the household exceeds 3% of the gross annual income: medical expenses for elderly family, Reasonable attendant care, auxiliary apparatus expenditures for dependent family members.

These adjustments to income can help you qualify for the USDA Rural Development Home Loan if your basic income puts you over the limit.

Credit guidelines for the USDA Home Loan

USDA has the lowest ratio of defaulted loans so they do a great job in lending to qualified customers. We can break credit down into 3 categories:

  1. Good (640 fico score and above)
  2. Bad (less than 640 middle fico score)
  3. Thin (no credit history without a score)

Collections and bankruptcies are issues that can cause some issues with getting approved. Depending on the age and the size of the collection will be a factor in if the collection needs to be paid off or not. Each lender will have their own requirements when deciding if they need to be paid off or not. This is also the same with bankruptcies. Most lenders now require the bankruptcy be discharged for 3 years before you can be considered for a USDA Home Loan.

Credit History

In today’s market most Lenders will require a credit history to have:

  • 3 trade lines (credit cards, auto, etc.)
  • 12 month active history for each of those 3 trade lines

Here it is important to note that the 3 trade lines do not currently need to open or even active. This requirement helps to assure that the credit scores are indeed accurate.

If you do not have the needed credit history you can use alternative credit.

What qualifies as Alternative Credit?

  • Local Stores (department stores, furniture, etc.)
  • Utilities ( water, gas, cable, phone, etc )
  • Rent and Housing payments
  • Increasing consistent deposits to a savings account
  • Insurance (medical, auto, life, renters, etc.)

Photo by mindy_g

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