Do you know what a USDA loan is? Do you know about the USDA home loan requirements? Chances are that you will have a rough idea of what it is but you will not know exactly what a USDA loan is. There are many different types of loans out there and it can get confusing for anyone who isn’t a seasoned mortgage professional. Here are the current USDA Home Loan requirements.
A USDA loan is simply put a type of home loan. The USDA stands for United States Department of Agriculture. If you have never heard of one of these home loans there is a reason for it, they are somewhat uncommon and a lot of banks in the U.S. do not offer them. USDA loans are targeted at a select portion of the population. Another name for this program is the USDA Rural Housing Mortgage Program.
USDA Home Loan Requirements and Guidelines
The USDA loan home loan requirements are simple to some degree. As you may have guessed from the name of the loan the USDA Rural Housing Mortgage Program, your house is required to be in a rural location. The definition of a rural location for the purposes of a USDA loan is lax though and it is possible to get one in many small towns across the country.
To receive a USDA home loan you are going to need to have mortgage insurance. Unlike with other loan programs though this is easily done. USDA loans are insured as part of your payment plan. Instead of paying cash every month to insure your plan, the insurance for a USDA loan is included in your overall payment. This means that the rates for mortgage insurance when you are using a USDA home loan is usually cheaper than any other home loan program that you can find.
Have you had a mortgage payment before? Are you worrying about being able to put a down payment on a USDA home loan? You do not need to worry anymore as all USDA loans do not require any down payment. That means you don’t have to make any kind of payment until your first regularly scheduled payment is due.
Is there a maximum loan size? While there is not a maximum loan size there is a limit to how much a person can take out on loan based on their debt and anything else they owe. Anyone wishing to apply for a USDA home loan is required to have a debt-to-income ratio of 41% or better.
Your debt ratio isn’t that good? Don’t worry. There are two ways around having to meet the requirement of the debt ratio. The first is that anyone with a credit score of 660 can get a bigger loan without being questioned as much. Your second option is to be able to demonstrate that you have the ability to save money.
Speaking of credit scores, is there a minimum credit score that is required to be approved for a USDA loan? The technical answer is no, there is no official minimum credit score required. However, most banks or lenders will have a credit score which they will not lend below. For a USDA home loan this credit score is somewhere around the 640 area. This is not a hard and fast rule and when applying for a USDA loan you can attempt to show a credit history via alternative methods. One just needs to be aware that it might be more difficult to get a loan under those conditions.
Who Can Apply for a USDA Home Loan?
Anyone who is trying to get a home loan in a rural area is able to apply but it goes beyond that. Since this program is put on by the government there are less restrictions than one might think. Becoming a consumer of a USDA home loan does not require you to be a first time home buyer. In fact home buyers of all kinds are welcome to apply for a loan from the USDA.
One of the major requirements for the program that comes up frequently is what type of property can a USDA home loan be used to purchase. We already know that the property must be rural in nature but the program does have further requirements. Any property purchased using a USDA home loan must be purchased for the purpose of primary residency. This means that one cannot use a USDA loan to purchase either a vacation home or an investment property. It must be the home that you spend the majority of your time in.
As one can see the USDA home loan requirements aren’t all that difficult. Many people who are looking to buy houses already meet the requirements but aren’t aware of it. In my personal opinion it’s one of the best mortgage loan products on the market but then again I may be a little biased. I’m a country boy at heart.