Example: if you have $3,000 in gross monthly income, then 29% of that figure (the maximum house payment you could qualify for) is $870/month. So, your total mortgage payment would have to be $870 or less.
The USDA home loan is available to borrowers who meet income and credit eligibility requirements. Qualification is easier than for many other loan types, since the loan doesn’t require a down payment or a high credit score.
USDA eligibility for a 1-4 member household requires annual household income to not exceed $86,850 in most areas of the country, but up to $212,550 for certain high-cost areas, and annual household income for a 5-8 member household to not exceed $114,650 for most areas, but up to $280,550 in expensive locales.
USDA mortgages require no down payment. Compare that to an FHA loan for which you need 3.5% down, and a conventional loan that requires 3-5% down. For a $200,000 home loan, the following down payments would apply.
The USDA doesn’t permit income-generating structures or pools, and the land can’t be income-generating or worth more than 30 percent above the value of the home. Wells and septic systems must be at least 100 feet from the home.
Interest Rate. USDA and FHA loans both typically offer lower interest rates because government backing offers more flexibility with lower interest rates. Both types of loans usually have interest rates comparable to or lower than the interest rate you’ll pay for a conventional loan.
Disadvantages of USDA Loans These include: Geographical requirements: Homes must be located in an eligible rural area with a population of 35,000 or less. Also, the home cannot be designed for income-producing activities, which could rule out certain rural properties.
Things like unverifiable income, undisclosed debt, or even just having too much household income for your area can cause a loan to be denied. Talk with a USDA loan specialist to get a clear sense of your income and debt situation and what might be possible.
With an FHA, VA, or conventional loan, the lender can completely approve and close the loan on its own. USDA, however, requires a hands-on check by USDA staff. The process can take an extra few days or up to three weeks or more depending on the backlog at your state’s USDA office.
The Possible Drawbacks Only primary residences can be purchased. USDA loans cannot be used to purchase a vacation home or rental property. There are geographical restrictions. Homes in urban centers won’t qualify. There are income limits. Mortgage insurance is factored into the cost.
While the USDA doesn’t have a set credit score requirement, most lenders offering USDA -guaranteed mortgages require a score of at least 640. This is the minimum credit score you’ll need to be eligible for automatic approval through the USDA’s automated underwriting system.
For a property to be eligible for a USDA loan, it must meet the basic eligibility requirements set forth by the USDA, which cover rural area designation, occupancy, and the physical condition of the home. The good news is that most of the country is in what the USDA considers a qualified rural area.
USDA Closing Costs Paid By Seller Rather than bringing more cash to close, USDA loans allow the seller to pay up to 6 % of the sales price towards the buyer’s closing costs. Therefore, the seller may pay part or all of the buyer’s closing costs.
Buyers considering a USDA loan often want to know how long it takes to close on a USDA loan. Every homebuying situation is different. But once you’re contract to purchase, you can typically expect the USDA loan process to take anywhere from 30 to 45 days to close on your USDA loan.
Stable and dependable income. A willingness to repay the mortgage – generally 12 months of no late payments or collections. Adjusted household income is equal to or less than 115% of the area median income. Property serves as the primary residence and is located in a qualified rural area.