USDA Mortgage Requirements and Guidelines
In this article, we will cover the USDA mortgage requirements and guidelines on home purchases. USDA loans are a very common and sought-after home loan program offered by private lenders and banks and insured by the U.S. Department of Agriculture Rural Development for rural and suburban areas throughout the United States.
Only homes that are zoned agricultural USDA-approved by the U.S. Department of Rural Development are eligible. Homebuyers do not have to put any down payment. USDA offers 100% financing to qualified homebuyers who meet USDA mortgage requirements and guidelines.
Many home buyers think only farm towns are designated USDA designated areas. This is not true. Many suburban areas nearby major cities are designated USDA designated areas. In this article, we will discuss and cover USDA mortgage requirements and eligibility guidelines on home purchases.
Eligibility Requirements on USDA Loans
There are two types of USDA Mortgage Requirements:
- The home needs to be located in a designated USDA area
- The borrower needs to meet USDA Mortgage Requirements and need mortgage guidelines of USDA to qualify for USDA loans.
USDA Home Loans are home loans guaranteed by the USDA Rural Development Guaranteed Housing Loan Program. The United States Department of Agriculture is the parent of USDA Rural Development Guaranteed Housing Loan Program.
Benefits of USDA Loans
More than 165,000 U.S. Families take advantage of the zero down payment, 100% financing USDA Home Loan Program to become homeowners every year. A large percentage of these home buyers are first time homebuyers. The government implemented and launched USDA loans to promote homeownership and quality of life in Rural Areas throughout the United States.
USDA does not originate nor fund USDA home loans. USDA guarantees and insures home loans funded by private lenders in the event homeowners default and foreclose on their USDA loans.
USDA will guarantee and insure lenders against the loss they took when borrowers default and foreclose on their loans. In order for USDA to insure loans, lenders need to make sure that all of their borrowers meet USDA Mortgage Requirements and Guidelines. Due to this government insure, lenders are able to offer very low mortgage rates with 100% financing on USDA home loans.
Types of USDA Home Loan Programs
Private lenders originate, process, underwrite, fund, nor services home loans. USDA is a government agency that insures and guarantees home loans that meet USDA Mortgage Requirements in the event lenders take a loss on borrowers who default on their USDA Loans. There are three government loan programs:
- FHA
- VA
- USDA
The above three government agencies all guarantee private lenders in the event homeowners default on their mortgages and lenders take losses. Lenders to meet the agency guidelines in order for government agencies to insure and guarantee loans to lenders. Due to government guarantees, private lenders are able to offer very low mortgage rates with either no down payment or little down payment on home purchases.
USDA Rural Development are not lenders. The USDA has nothing to do to originate or service USDA loans. Private lenders and banks originate USDA loans and if the homeowners defaults, USDA will partially insure and guarantee the lender. Therefore, USDA acts like a large government mortgage insurance agency to promote lenders to originate more USDA loans with 100% financing.
Direct USDA loans are home loans issued by USDA. USDA Direct Loans are for low-income families. USDA wants to promote home ownership for low-income families in underserved areas in the United States. USDA designated which areas are eligible for USDA financing. Low income is defined by average incomes depending on the region. Mortgage Rates can be as low for very low-income borrowers with families, this includes subsidies.
How Do Home Buyers Qualify For 100% Financing USDA Home Loans
USDA Loans are for owner occupant properties only. Second-home financing and investment property loans are not allowed with USDA Financing. Most lenders want to see a lot of income from their borrowers. The more income a home buyer has, the safer and fewer risk lenders have. Not with USDA Loans.
USDA has maximum household income limits. Families with high incomes cannot qualify. Income limits and caps are different dependent on location and dependent on the size of the household.
USDA loans has a maximum front-end of 29% and 41% back-end debt-to-income ratio. Our viewers can click on the USDA map and table to find out the maximum income limit on the county home buyers are interested in purchasing a home.
USDA Mortgage Requirements and Credit/Income Guidelines
Not everyone are eligible for USDA loans. Only properties in USDA designated rural areas in the United States are eligible for USDA loans. Many people often are under the impression to be eligible for a USDA loan in a USDA designated rural area, you need purchase a home in a community where homes are on farms. This is not true. USDA can designate certain areas that look like any typical suburban community as USDA designated and eligible for USDA loans. Click this link to USDA Rural Development to see if the area you are looking to buy a house is eligible for USDA loans.
Hard working families in rural America may be able to be eligible to purchase a home with no down payments and no closing costs with a USDA loan. USDA Rural Development is the federal agency that insures banks that offer 100% financing federally-insured USDA loans at modest interest rates.
Most homebuyers do not have to worry about closing costs because the realtor and loan officer huddle together and get the seller to offer seller concessions for the homebuyer’s closing costs. In the event if the homebuyer is short of closing costs credits with a seller concession, the lender can offer a lender credit in lieu of a higher rate. Mortgage loan applicants need to be a U.S. citizenship or permanent resident of the U.S.
USDA Mortgage Guidelines on Debt-To-Income Ratios
USDA Guidelines on Debt-To-Income Ratios as follows:
- 29% or less front end debt to income ratios
- 41% back end debt to income ratios
- Minimum credit scores of 580
- Two-year employment history
- Full-time employment and employment likely to continue for the next three years
- Timely payments in payments in the past 12 months
Borrowers need to meet a minimum of 580 credit scores.
USDA Mortgage Underwriting Process
USDA promotes homeownership to families in need of housing with limited income. Higher-end wage earners do not qualify for this loan program Ideal candidate for this loan program are folks with the following:
- First time home buyers who with children in need of housing
- Cannot afford down payment to purchase a home with conventional financing
- Lower-income wage earners with families where they need a home and not a one or two-bedroom apartments
Rural Development will normally issue a USDA Direct Loan for properties with less than 2,000 square feet with homes with market values under the county’s loan limits. It is dependent on the area and location of the property. A large percentage of California, Hawaii, Alaska are designated high-cost areas with average home prices over $600,000. There are many rural areas in the U.S. where homes are under $80,000. USDA Loans is not just for farm and/or rural areas. There are many suburbs of major cities or larger cities that are zone as eligible areas.
Qualifying For USDA Home Loans With Lender With No Overlays
Gustan Cho Associates are mortgage brokers licensed in 48 states, including Washington, DC, and Puerto Rico. We have teamed up with 210 wholesale mortgage lenders including dozens of top five-star USDA wholesale lenders with no overlays on USDA loans.
Gustan Cho Associates has a national reputation of being able to do mortgage loans other mortgage companies cannot do. The team at Gustan Cho Associates are experts in originating, processing, and closing USDA loans.
Homebuyers who need to qualify for USDA Home Loans with a mortgage lender licensed in 48 states with no overlays on government and conventional loans, please contact Gustan Cho Associates at 800-900-8569. Text us for a faster response. Or email us at gcho@gustancho.com. A large percentage of our loans we originate and close are USDA Loans. The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays.
