Getting A USDA Loan: The Most Important Requirements
Depending on where you live, you might be qualified for a USDA loan. These are loans that were created as a result of the Rural Development program. The purpose of these loans is to improve the quality of life for families who live on rural areas by offering lower interest rates and no down payment. The entire purchase price of the home can be financed. However, to obtain one of these very attractive loans, you will need to meet certain qualifications.
Basic Requirements
Since this loan is designed to hep rural residents, you must live in a location that is considered rural. Also, the loan is only intended for those who are purchasing their first home for the purpose of living there. The loan cannot be used for those purchasing a second home or those who are using the home as an investment property. Also, you cannot be making more than 115% of the median income of wherever you live.
Fees Required
To obtain the loan, you will need to pay a small fee and you will also need to pay a premium of 2% of the loan. However, this can be rolled into the loan and paid over time. Therefore, it is possible to receive the loan with nothing down. While this loan is very affordable, you will still need to prove that you have a dependable income if your loan is underwritten manually. You will need to make a monthly payment, but it fortunately needs to be 29% or less of your monthly income.
Credit Requirements
One of the best parts of a USDA loan is that it can be entirely automated. However, to receive automatic approval, you will need to have a credit score of 640 or higher. If you are above the 29/40 ratio requirement, you may need to have a credit score of 680. Otherwise, you will have to undergo a manual underwriting. When undergoing a manual underwriting, you will need compensating factors that will increase the chances that you will be approved for the loan. For instance, if you have a college degree, this is treated as a compensating factor. There is no minimum credit score, but the worse the credit score, the more difficult it will be to be approved and the more important that you will need a good credit history. But it is always a good idea to speak with a lender and use a USDA calculator to determine if the loan is right for you.