USDA Loan Requirements
The Benefits of USDA Loans
Why is investigating USDA loans such a good idea? While it’s always smart to be aware of your options, these home loans come with significant benefits. As Time reports, USDA loans offer all of the following benefits:
- They require no down payment.
- They offer competitive interest rates.
- They allow borrowers to finance closing costs.
- They let borrowers pay an annual fee in place of expensive private mortgage insurance premiums.
USDA Loan Options for Aspiring Homeowners
USDA loans are designed to promote homeownership in parts of the United States where the population density is lower, but that doesn’t mean that these loans can only be used to finance the purchase of properties located in the middle of nowhere. While properties in urban centers won’t make the cut for a USDA loan, homes in both rural and suburban areas can qualify. In fact, The Mortgage Reports states that some 97 percent of the land mass of the United States falls within the eligibility requirement set by the USDA loan program.
There are actually two types of USDA loans for people buying a single-family home:
- Single Family Housing Direct Home Loans: Sometimes called Section 502 Direct Loans, these loans are made directly by USDA Rural Development to low- and very-low-income applicants.
- Single Family Housing Guaranteed Loans: When people talk about a USDA loan, this is normally the type of loan that they’re referring to. These guaranteed loans operate much like a VA loan. Instead of being provided by USDA Rural Development, they’re offered by private lenders. These lenders provide qualifying borrowers with favorable terms in return for the USDA’s guarantee of 90 percent of the loan amount.
USDA Loan Requirements
USDA loan requirements set standards for several factors. As realtor.com explains, both the borrower and the property have to meet certain requirements. What things are considered when determining eligibility for a USDA loan?
People utilizing the USDA’s loan programs have to meet certain citizenship requirements. To qualify for either a direct housing loan or a guaranteed loan, you must be a U.S. citizen, U.S. non-citizen national, or a qualified alien.
USDA loans can only be used to fund the purchase of a primary residence (source). If you’re hoping to finance the purchase of a rental property or a second home, then you’ll need to look elsewhere.
When it comes to USDA loans, location matters. These loans are intended to support homeownership in rural areas, but there are many homes in suburban areas located just outside of large population centers that also meet the eligibility requirements. Are properties where you hope to buy a home eligible for a USDA loan? To help you explore the possibilities, USDA Rural Development provides an eligibility website for people interested in USDA loans.
Income limits for the USDA’s guaranteed loans vary by county, so you’ll need to consult a financial professional familiar with these loans or visit the USDA’s listing of income limits to find out what the limit is in your particular area. As NerdWallet explains, meeting these income limits is just the start. You’ll also need to show evidence of a dependable income. In addition, your proposed monthly payment, a figure that includes the principal, interest, insurance, and taxes, must be 29 percent or less of your monthly income. Because they are intended for low- and very-low-income borrowers, the USDA’s direct loans have slightly different income requirements. Applicants must demonstrate that they lack housing that is “decent, safe, and sanitary,” that they are unable to secure a home loan through traditional means, and that their adjusted income is at or below the low-income limit for their area.
Most lenders want to verify that a property’s value is a good match for the amount of the loan, so it is to be expected that people using one of the USDA’s guaranteed loans must select properties that meet certain criteria for size and amenities. Individuals using one of the USDA’s direct loans have stricter standards to meet when it comes to the property that they purchase. As Credit Sesame states, properties purchased with a direct loan cannot be larger than 2,000 square feet, be designed to produce income, feature an in-ground swimming pool, or be valued at more than the specific area’s limit.
If you’re curious about USDA loan requirements or would like to explore your mortgage options, contact PrimeLending today if you live in the Kansas City area. Our team is committed to helping you navigate the home financing process so that you can purchase the home of your dreams. At our branches located throughout Kansas City, we can help you explore our wide variety of loan products and programs. Plus, PrimeLending utilizes delegated underwriting, local appraisers, and cutting-edge technology to accelerate the underwriting and closing processes. If you’re ready to learn more about how to apply for a home loan, please give us a call at 844-701-5626.