USDA home loans are 100% financed by a mortgage lender. GVC Mortgage is a direct mortgage lender and we underwrite and close USDA home loans! Here is what you need to know when qualifying for a USDA home loan. The USDA mortgage program is a guarantee from the United States Department of Agriculture. The Single Family Housing Guaranteed Loan Program is designed to “assist approved lenders in providing low and moderate-income households the opportunity to own adequate, modest, decent, safe, and sanitary dwellings as their primary residence in eligible rural areas.”
So, USDA guarantees 90% and the lender finances 100% of the loan if the applicant meets the USDA standards. The quickest way to find out if you are a candidate for this mortgage is to call your Top-Rated-Lender at 419-350-8420.
Before we jump in there are three HUGE benefits to a USDA mortgage. First, 100% financing! Second, no monthly mortgage insurance premium. FHA & Conventional loans require you to pay a monthly mortgage insurance premium, but not with USDA. Third, the seller can pay up to 6% of the purchase price towards your closing costs!
Most borrowers think of a USDA home mortgage for the purchase of a new home but USDA will also guarantee your refinance transactions as well.
USDA income eligibility
The first thing you need to do is talk to your lender about income qualifications. If you live in the 419 area code (Northwest Ohio), I have created an income guide located by click this blue link. There are 4 income definitions that are used by USDA Rural Housing.
Annual Income. The income of ALL adult household members. Even if the adults are not on the mortgage application we must gather ALL adult household annual income. This is the first step in determining your eligibility for the Single Family Housing Guaranteed Loan Program. This calculation depends on the source of your income (w2, 1099, public assistance, k-1, farm income, etc).
Adjusted Annual Income. The household’s annual income minus certain qualified household deductions.
Qualifying Income. Adjusted annual income compared to established income limits to determine eligibility of the household for the SFHGLP
Repayment Income. The stable and dependable income used to calculate debt ratios and determine whether the applicant(s) can afford the home.
What income is NEVER COUNTED. This is really important to know because you may think you should count these types of income… but they will NOT be counted. Check them out here.
Normally within 10 business days of a loan closing our underwriter will at minimum get a verbal verification of employer for all salaried applicants. This is very standard to verify that you are still working. The income explanation goes on for another 53 pages and is mainly for the underwriter. If you have questions about qualifying feel free to call us and we can walk you through the process.
Housing and debt ratios are used to qualify that you have enough monthly income to make your mortgage payment and meet your additional debt obligations. So, USDA has a guideline income ratio that every lender generally follows. There are waivers for purchase transactions for these ratios to be higher but it is up to the underwriter to raise these ratios. Each borrower is unique. Your mortgage payment cannot exceed 29% of your repayment income. See the definition of repayment income above. Simple illustration, if you have $1,000 monthly income your housing expense (known as PITI) cannot exceed $290 per month. Your total debt ratio which includes your total mortgage payment (PITI) is 41%. So, if you have a $1,000 monthly income your total mortgage payment plus all your other debt payments can exceed $410 per month. The lender and USDA wants to make sure that the borrower has enough monthly income to pay the mortgage and their other debt obligations and have money left over for living expenses. Feel free to call us if you have questions about if you qualify. We are happy to walk you through the process.
USDA primary residence requirement
You must occupy the property being financed as your primary residence. A great opportunity for a first-time home buyer! Do you already own a home? If yes, you can still qualify for a USDA loan. This program is not exclusively for first time homebuyers. USDA is a program where the homeowner promises that this will be their primary residence. We are happy to give current homeowners guidance on qualifying for the USDA program.
Two types of credit in this section. Your “credit documents” (aka credit report) and “securing credit” (aka A Mortgage).
Your credit report used must be no more than 120 days old on the date the note is signed at closing. If it takes you a few months to find the perfect home we may need to update your credit for the loan file. USDA’s credit analysis section states, “you must have a credit history that demonstrates that you are reasonably able and willing to repay the loan and meet obligations in a manner that enables the lender to draw a logical conclusion about the applicant’s commitment to indebtedness.” If you have questions about your credit and if you qualify feel free to call us and we can discuss your unique situation.
Your lender & the applicant (you) have to certify that you are not able to secure credit from other sources in order to request a “Single Family Housing Loan Guarantee” from USDA. If you can get a traditional conventional mortgage (20% down +) you won’t qualify for a USDA home loan. A USDA applicant cannot…
Be truthful as integrity is of the utmost importance during the mortgage application process. There can be civil liability, monetary damages, fines, or imprisonment for misrepresentations.
USDA property evaluation. Does the property address qualify?
After you meet the income requirements the property must fall on the USDA map. The simplest way to find out if your town or the property you want to buy qualifies for USDA financing is to just call me at 419-350-8420. The general rural area rule is that the property is not located in an urban area. The area generally has a population of less than 10,000. The definition continues for a while. You can enter your town or property address in this USDA eligibility map and it will tell you if the property is eligible for USDA financing.
Just because the address qualifies, does NOT mean the property will qualify. As with all mortgages that are financed an appraisal must be ordered. Also, one of the big hangups with USDA is water and sewer. If the home is located in a small town where it is hooked up to public water and sewer that is AWESOME! If not, there is normally an inspection that must occur in order for USDA to deem the property decent, safe, & sanitary. The water and sewer inspection are normally a surprise for buyers. It normally can delay closing by a few days and it is best if your realtor informs us that it is not hooked up to public water & sewer so we can order the inspection immediately after the appraisal. Remember, USDA just wants to ensure that you are not purchasing a home that is not decent, safe, and sanitary.
Questions: call me at (419) 350-8420
Ready to apply for a USDA 100% financed mortgage?