Steps for Applying For a USDA Home Loan

The US Department of Agriculture provides people who are wishing to buy a property in the countryside. Under the Rural Development Program of the Department, low or moderate income earners can apply for a mortgage without having to make a down payment and with a competitive interest rate. The aim is to lessen the financial burden on borrowers. The program comes with certain restrictions on eligibility and qualifications (Click here to read).

How The Loan Works

USDA home loans are available as different programs depending on the borrower. Examples of programs include:

Single Housing Family Loan.  This program connects eligible borrowers with a mortgage loan through a USDA-approved lender. This type of loan comes with low interest rate with zero down payment. However, in order to use the no down payment option, you need to pay for mortgage insurance (Click here to read).

Direct Loan. From the name itself, these loans are issued directly by the USDA. The income threshold will depend on the region. It comes with subsidies and the interest rate is as low as 1%.

Home Improvement Grants and loans. These loans are granted to homeowners requiring financial assistance for upgrading or repairing their homes. It can combine grants and loans up to $27,500.

Applying For the Program

The easiest way to apply for a USDA home loan is through an approved lender for the program. These lenders will ensure that all the paperwork are taken cared of. They will work with you from the start to the finish of the process. Here are the steps on how you can apply for the program.

Select a loan program. Buyers can avail of two loan options. If your income is less than 115 percent of the median income in your area, you might be eligible for a Guaranteed Housing Loan. You can apply for a Section 502 loan to purchase a home in your area. To qualify for the loan, the home should be your primary residence.

Meet income requirements. The income requirement is divided into very low, low, and moderate. The USDA publishes current income restrictions for each program. Very low income is defined as being below 50 percent to the area median income or AMI. Low income is between 50 and 80 percent of the AMI.

Maintain decent credit. As far as credit is concerned, the US Department of Agriculture offers some flexibility. However, they might still review your credit history. Reasons you might be disapproved for loan include foreclosure or bankruptcy in the last 3 years, judgment in the past year, outstanding tax liens, or outstanding collection accounts.

Maintain a low debt-to-income ratio.  Debt to income ratio is the percentage of income that goes towards bills payments. To qualify, you should have a 29 percent ratio for housing costs and 41 percent for total debt. There are cases when a lender can request for exception to allow a higher ratio.

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