Qualify for a USDA Loan
Qualify for a USDA Loan
The USDA home loan program is backed by the United States Development of Agriculture (USDA) to assist people having low to moderate incomes to find a safe, hygienic, and suitable house for themselves. In this section, we will discuss the requirements that will help you qualify for USDA home loans.
How can you qualify for a USDA Loan?
- The houses present in rural areas are the only ones that qualify for a loan. The term “rural” does not only mean suburban areas, it also includes towns and semi-rural areas with a population of less than 20,000.
- The house should meet the standards set by the U.S. Department of Housing and Urban Development.
- Your annual earnings should not exceed the median income of the area by more than 115%.
- You can only qualify for the USDA loans if you cannot qualify for any conventional mortgage. This can be determined by reviewing your credit and income history.
- You should have a better than average credit score or a fair credit history to qualify for the loan. If you have a low FICO score then also you might qualify for the loan because it is better than having a bad credit history.
- You should apply for the loan with the help of an approved lender only or institutions only.
- There is a qualification formula present that you must meet before applying for the house that you want. According to this formula, your insurance, taxes, interest, and the principal amount of the loan should not exceed your gross monthly household income by 29%.
- Plus, there are rules related to debt-level, which state that to pay off the debts you cannot use more than 41% of your household income.
Important criteria for availing USDA home loans – Qualify for a USDA loan
While all these standards are extremely important and you need to fulfill them before applying for a USDA home loan, there are four major criteria that lenders tend to evaluate before considering you fit for USDA loans. These criteria are:
Income – Qualify for a USDA loan
The most important thing considered and looked at by the lenders is your income, because the USDA loan program is solely designed for people having low to moderate incomes. There are two things that are considered by the lenders regarding your income. Firstly, it should not be way above the area’s median income and secondly, it should not be so low that you could not afford to pay off your monthly mortgage.
Debt to income ratio – Qualify for a USDA loan
The second important thing that will be considered is your debt to income ratio. Your monthly loan principal, interest, taxes and insurance, also known as PITI, must be less than your monthly income by 29%. And apart from this, your debt cannot exceed your income by 41%. The lenders look at this so that you can easily repay your monthly mortgage without much difficulties.
Credit score and history – Qualify for a USDA loan
The third thing that the lenders look at is your credit history and score. It is desired that your credit score should be more than 640, which is higher than what other lenders look at. However, an exception might be made if your file is thin or shows a financial progress.
Employment history – Qualify for a USDA loan
Last but not least, your employment history is checked extensively for discrepancies like unexplained unemployment for a long time. The lender will also like to know if you are stable with your jobs and can hold it for more than 6 months.
If you have further questions or you want to get more information on how you can qualify for a USDA loan, contact us. You can call us or you can fill out our online inquiry form.