The USDA home loan program helps people purchase loans in non-urban areas with no down payment required. For those who qualify, this program is an affordable way to purchase a home. Because the loan has backing from the government, lenders face less risk, and thus the loan requirements are less stringent. Are you interested in purchasing a loan with this program? Here’s how you can qualify.
Choose a Qualified Property
To use the USDA home loan program, you must purchase a property that qualifies for the program. Though it’s primarily designed to build rural communities, the definition of a qualified community is actually quite lenient. Most large metropolitan areas are excluded, but you’ll find many suburban communities that qualify
For a home to qualify for the USDA home loan program, the borrower must plan to live in the property. However, that does not mean the program excludes multi-family properties. As long as the borrower plans to occupy one unit, a multi-family home, like a duplex, in a qualified area may qualify for the USDA home loan program.
Next, determine if you are a qualified borrower. The USDA home loan program is offered to U.S. citizens who can afford the monthly payment. In order to determine eligibility, the lender will look at your monthly payment amount compared to your income. It should be 29 percent or less of your total monthly income. In addition, your other debt payments cannot exceed 41 percent of your income.
Your credit history is also an important part of the process. Interestingly, because these loans have less risk to the lender, the lender may be willing to accept someone with a lower credit score. However, your credit score needs to be 640 or higher to streamline your pre-approval process. If it is lower, your lender may take a closer look at the rest of your financial history before awarding you the mortgage.
Finally, your income is an important factor. Lenders want to see that you have reliable, dependable income over the last 24 months or longer. Having this stable employment history will increase your chances of getting qualified for the loan. The income must also fall below the current income limits, which vary based on the household’s size and the average income in the community where you will be purchasing your home.
If you have a higher debt-to-income ratio than 41 percent, but also have a high credit score, you may also qualify. Lenders will look at your whole financial picture before making a decision.
How to Pre-Qualify
If you are shopping in a qualified area of the country and feel that you are a qualified borrower, the next step is to find a lender who participates in the USDA home loan program. Pre-qualify for the loan as you normally would, indicating you wish to use the USDA home loan program, and wait for acceptance. Once you have qualified, you can confidently purchase your home with no money down.