Section 2: Am I Eligible for a USDA Loan


Eligibility For a USDA Loan

In general, USDA eligibility is based on the buyer and the property. First, the home must be in an eligible rural area, which USDA typically defines as a population of less than 20,000. Second, the buyer must meet USDA monthly income caps. To be eligible, you can’t make more than 15% above the local median income. You also have to use the home as your primary residence (no vacation homes or investment properties allowed).

Borrowers have to meet USDA’s “ability to repay” standards, including:

  • Income eligibility: Steady job and monthly income, proven by tax returns
  • Credit requirements: FICO credit score of at least 640 (though this can vary by lender)
  • Existing debt ratio: Debt–to–income ratio of 41% or less in most cases

To find out if the property you’re buying is a USDA eligible rural area and if you meet local income limits, you can use the USDA’s eligibility maps.

What areas are eligible for a USDA loan?

With the USDA Rural Housing Program, your home must be located in a rural area. However, the USDA’s definition of “rural” is liberal. Many small towns meet the “rural” requirements of the agency, as do suburbs and exurbs of many major U.S. cities. About 97% of the United States landmass fits the USDA loan’s definition of “rural.” Only 3% is ineligible at the time of writing this article.

*Don’t meet the minimum requirements? You still may be eligible: talk with an Orbit Home Loan specialist today.  (CLICK)

Down Payments

USDA loans are available to home buyers with low–to–average income. They offer financing with no down payment, reduced mortgage insurance, and below–market mortgage rates. Using a USDA loan, buyers can finance 100% of a home purchase price while getting access to better–than–average mortgage rates. This is because USDA mortgage rates are discounted as compared to other low–down payment loans. 

Documents Your Lender May Require

- W2s or 1099’s
- Bank Statements
- Pay Stubs
- Asset Statements
- Liability Statements
- Legal ID
 

USDA Lender Requirements 

Credit and Income

You might qualify for a USDA loan if you have an average salary for your area and a credit score of 640 or higher. USDA loans can be used to buy a home only in a rural or suburban area. Typically, qualifying areas have a population under 20,000. The income limit for USDA home loans is based on your area’s median income. To be eligible for a USDA loan, you can’t exceed the median income by more than 15%. For example, if the median salary in your city is $65,000 per year, you could qualify for a USDA loan with a salary of $74,750 or less. (15% of $65,000 = $9,750 → $65,000 + $9,750 = $74,750). On December 1, 2014, USDA implemented a minimum score of 640. Before that date, USDA set no minimum score for the program. However, most lenders did. When USDA implemented an official credit score minimum, it did not exclude very many additional buyers. If you are without a credit score, your lender may accept “alternate” tradelines to establish a credit history. (For instance, on–time rent and utility payments that wouldn’t typically be included in a credit report.)

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How to Apply for a Conventional Loan
Get started today with one of the best and most secure ways possible. Here are Orbit Home Loans we have a trusted team ready to help you find your dream home. Talk with you trusted Orbit Home Loans broker that knows conventional loans and how to get the most from this hard-earned benefit. The process typically starts with getting pre-approved, which can often be done in minutes using your phone, laptop or tablet. 

Loan pre-approval is a key first step before making an offer on your dream home. Having that pre-approval letter gives you a clear sense of your buying power and shows sellers and listing agents you have what it takes to get to closing. 

 

Questions about whether you qualify? (CLICK)

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