How Do You Qualify for a USDA Loan?

Success Mortgage Partners - With Kristin Jamieson

Qualifying for a USDA loan is different than qualifying for other loan packages since it's 100% financing. These are the basic requirements you'll need to meet to qualify for this loan.

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I recently had a Realtor ask for some clarification on USDA guidelines and how buyers can obtain approval for a USDA mortgage.

There are three basic requirements for a USDA mortgage:

1. The buyer has to buy in a USDA eligible area. Fortunately, Lake County and all surrounding counties are eligible.
2. They have to meet household income requirements. It's not just the buyer's income, it's the household's income. If the buyer has children older than 18 living in the home, their income is considered, too, as well as a spouse that's not included on the loan. An easy example is that a family of one to four can't make more than $75,850 in our county, and a family of more than four can't make more than $98,000. Things can be deducted from this income, though, like child care or disability expenses for older adults.
3. At Success Mortgage Partners, we require a credit score of at least 620. Since it's on the lower end, it's not crazy for people to qualify for, but we do need them to meet that benchmark. USDA allows financing for those with no credit score, but that doesn't mean a bad credit score. Some people have simply never used credit, and that's OK. You can do this by confirming things like rent and insurance payments. USDA looks over the last 12 months. If you have a 620 credit score but still have some derogatory credit like collections or late payments popping up, it can disqualify you.

USDA is also very strict on their debt-to-income requirements. Since it is a 100% financing loan, they want to make sure the buyer can afford the payments, so they are more strict than some other loan programs. They will only allow us to use 29% of their income for their housing expenses and 41% total income for all of their other expenses. This helps prevent buyers from becoming house rich and dirt poor.
The other potential deal killer for a USDA loan is if you own another house. With a USDA loan, you can't have two mortgages. However, there are some exceptions to the rule, like relocation from out of state that leaves you unable to sell your other house prior to your move, in some cases.
Other than that, a USDA loan is just a conventional loan with FHA appraisal requirements; there can't be health or safety concerns with the home as far as the appraisal is concerned.
If you have any more questions about USDA loans or the guidelines surrounding them, please don't hesitate to call or email me. I'd be glad to answer any questions you have!