Qualifying for USDA Loans
USDA Loans are low interest rate and no down payment mortgages for eligible rural homebuyers. This program is ideal for low income borrowers who can’t get a traditional mortgage.
When it comes to a government-backed loan such as a USDA loan, you can expect strict requirements a borrower must meet. For example, you will need a good credit score, low debt-to-income ratio, and a way to prove sufficient income to repay the loan.
For a USDA loan, the household income limitations are based on the county and the number of members within the household. The income limits apply to all members living in the home who receive income and are eighteen years of age or older, even if their name is not listed on the loan application. In addition, borrowers on the loan must be able to properly document their income via tax returns and/or W2s.
Household income limits can vary based on the family size, number of dependents, etc. You can check on the USDA website to see if your household income will allow you to qualify for a USDA loan.
As for credit requirements, the borrower’s credit score should not be less than 640. Separate requirements regarding past bankruptcies or foreclosure are also factors to be considered. The borrower’s debt-to-income ratio should also be below the set limits.
With a USDA loan, you aren’t required to use a co-borrower but it can be useful if you need help to meet the income requirements or to strengthen your credit score. Unlike Conventional and FHA Loans, the co-borrower of a USDA loan must be someone who will be living with you in the new home, and they will need to meet the same credit, income, and debt requirements as you.
Another important thing to note when considering a USDA home loan is whether the property is eligible and located in a qualifying rural area. The best resource to use is the USDA Income Property Eligibility Site where you can look up the address of the specific property.
With the financial benefits of a USDA loan, along with the perks of living in a rural area, a USDA loan is a great option to consider for financing your next home purchase.