USDA Mortgage Loan Tips and Advice

by on September 27, 2012

The U.S. Department of Agriculture (USDA) would like to make it possible for people in rural areas to own their own homes, and that is the reason that they are currently offering USDA loans to qualifying individuals and families. Before people apply for a USDA loan, they will want to make sure that they are eligible. A USDA mortgage can only be approved for those who meet the property eligibility, income eligibility and credit eligibility requirements.

Property Eligibility

Eligible property is located in a rural area that accepts USDA loans. The area must meet the USDA’s definition of a rural locality, and that means that the location where the house to be purchased is situated is near a town that has no more than 10,000 people. These guidelines are not necessarily strictly enforced, and the area in question may still qualify for a USDA mortgage. People can visit the USDA website, type in the property’s address and learn whether or not the property qualifies for the loan.

Income Eligibility

Income eligibility will depend on three things: the borrower’s income, how many members there are in the household and the borrower’s age. A borrower can only make 115 percent of the median income of the area to qualify for a guaranteed loan. Those seeking a direct loan can only make 50 to 80 percent of the area’s median income. Potential borrowers can determine whether or not they qualify when they visit the USDA database. They will be able to enter the information outlined above for the locale they interested in and will learn the maximum amount of money that they can earn to qualify.  Eligibility will also be determined by the applicant’s debt-to-income ratio. For example, the mortgage payment, the insurance and taxes can only comprise up to 29 percent of the borrower’s monthly income. Furthermore, borrowers can only spend 41 percent of their monthly income on their other expenses and debts. If all of these qualifications are met, the borrower may be able to submit an application for a USDA loan.

Credit Eligibility

Potential borrowers will need a credit score of 620 to qualify for these loans. Most lenders will require this score, but some lenders may be willing to place more weight on other areas of an applicant’s finances.  If a borrower has a credit score above a 660, additional requirements may be eased through a streamlined underwriting process.

The Down Payment

USDA mortgages are so affordable because they do not require that borrowers have a down payment before they can receive financing to purchase a house. These loans will have closing costs, but borrowers do not necessarily have to pay these costs at closing if they do not have the means to do so. The closing costs will be added to the principle amount in these cases, if the appraised value of the home permits.

After people interested in a USDA rural mortgage find a property they would like to buy, the first thing they will want to do is go to the USDA website and make sure that the property is eligible and that they qualify for the loan. Doing so will help the process move along as smoothly and quickly as possible.

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Spencer is mortgage insider and expert in home finance.

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