USDA home loans are 100% financed by a mortgage lender. GVC Mortgage is a direct mortgage lender and we underwrite and close USDA home loans! Here is what you need to know when qualifying for a USDA home loan. The USDA mortgage program is a guarantee from the United States Department of Agriculture. The Single Family Housing Guaranteed Loan Program is designed to “assist approved lenders in providing low and moderate-income households the opportunity to own adequate, modest, decent, safe, and sanitary dwellings as their primary residence in eligible rural areas.”
So, USDA guarantees 90% and the lender finances 100% of the loan if the applicant meets the USDA standards. The quickest way to find out if you are a candidate for this mortgage is to call your Top-Rated-Lender at 419-350-8420.
Before we jump in there are three HUGE benefits to a USDA mortgage. First, 100% financing! Second, no monthly mortgage insurance premium. FHA & Conventional loans require you to pay a monthly mortgage insurance premium, but not with USDA. Third, the seller can pay up to 6% of the purchase price towards your closing costs!
Most borrowers think of a USDA home mortgage for the purchase of a new home but USDA will also guarantee your refinance transactions as well.
So, do I qualify for a USDA Mortgage? The 5 standards + Underwriting
USDA income eligibility
- The first thing you need to do is talk to your lender about income qualifications. If you live in the 419 area code (Northwest Ohio), I have created an income guide located by click this blue link. There are 4 income definitions that are used by USDA Rural Housing.
- Annual Income. The income of ALL adult household members. Even if the adults are not on the mortgage application we must gather ALL adult household annual income. This is the first step in determining your eligibility for the Single Family Housing Guaranteed Loan Program. This calculation depends on the source of your income (w2, 1099, public assistance, k-1, farm income, etc).
- Adjusted Annual Income. The household’s annual income minus certain qualified household deductions.
- Qualifying Income. Adjusted annual income compared to established income limits to determine eligibility of the household for the SFHGLP
- Repayment Income. The stable and dependable income used to calculate debt ratios and determine whether the applicant(s) can afford the home.
- What income is NEVER COUNTED. This is really important to know because you may think you should count these types of income… but they will NOT be counted. Check them out here.
- Normally within 10 business days of a loan closing our underwriter will at minimum get a verbal verification of employer for all salaried applicants. This is very standard to verify that you are still working. The income explanation goes on for another 53 pages and is mainly for the underwriter. If you have questions about qualifying feel free to call us and we can walk you through the process.
- Housing and debt ratios are used to qualify that you have enough monthly income to make your mortgage payment and meet your additional debt obligations. So, USDA has a guideline income ratio that every lender generally follows. There are waivers for purchase transactions for these ratios to be higher but it is up to the underwriter to raise these ratios. Each borrower is unique. Your mortgage payment cannot exceed 29% of your repayment income. See the definition of repayment income above. Simple illustration, if you have $1,000 monthly income your housing expense (known as PITI) cannot exceed $290 per month. Your total debt ratio which includes your total mortgage payment (PITI) is 41%. So, if you have a $1,000 monthly income your total mortgage payment plus all your other debt payments can exceed $410 per month. The lender and USDA wants to make sure that the borrower has enough monthly income to pay the mortgage and their other debt obligations and have money left over for living expenses. Feel free to call us if you have questions about if you qualify. We are happy to walk you through the process.
USDA primary residence requirement
- You must occupy the property being financed as your primary residence. A great opportunity for a first-time home buyer! Do you already own a home? If yes, you can still qualify for a USDA loan. This program is not exclusively for first time homebuyers. USDA is a program where the homeowner promises that this will be their primary residence. We are happy to give current homeowners guidance on qualifying for the USDA program.
USDA credit standards
- Two types of credit in this section. Your “credit documents” (aka credit report) and “securing credit” (aka A Mortgage).
- Your credit report used must be no more than 120 days old on the date the note is signed at closing. If it takes you a few months to find the perfect home we may need to update your credit for the loan file. USDA’s credit analysis section states, “you must have a credit history that demonstrates that you are reasonably able and willing to repay the loan and meet obligations in a manner that enables the lender to draw a logical conclusion about the applicant’s commitment to indebtedness.” If you have questions about your credit and if you qualify feel free to call us and we can discuss your unique situation.
- Your lender & the applicant (you) have to certify that you are not able to secure credit from other sources in order to request a “Single Family Housing Loan Guarantee” from USDA. If you can get a traditional conventional mortgage (20% down +) you won’t qualify for a USDA home loan. A USDA applicant cannot…
- Have liquid assets of at least 20% for a down payment on the home you want to purchase
- Plus have enough liquid assets to pay all closing costs
- Plus have low debt to income ratios.
- Plus have enough down payment not to pay private mortgage insurance.
- Here is the great news. You probably don’t have a large down payment to qualify for a conventional loan. USDA is in the business of guaranteeing home loans for “low and moderate-income households”.
- You must be a citizen or meets the non-resident alien criteria. As USDA puts it, “The applicant must be a U.S. citizen, a U.S. non-citizen national, or a qualified alien.”
- Legal capacity to obtain a mortgage loan under state law.
- You have not been suspended from federal programs. The lender will run your name through the GSA system or the SAM.gov website as part of the approval process.
- Meeting your current credit obligations.
- Be truthful as integrity is of the utmost importance during the mortgage application process. There can be civil liability, monetary damages, fines, or imprisonment for misrepresentations.
USDA property evaluation. Does the property address qualify?
- After you meet the income requirements the property must fall on the USDA map. The simplest way to find out if your town or the property you want to buy qualifies for USDA financing is to just call me at 419-350-8420. The general rural area rule is that the property is not located in an urban area. The area generally has a population of less than 10,000. The definition continues for a while. You can enter your town or property address in this USDA eligibility map and it will tell you if the property is eligible for USDA financing.
- Just because the address qualifies, does NOT mean the property will qualify. As with all mortgages that are financed an appraisal must be ordered. Also, one of the big hangups with USDA is water and sewer. If the home is located in a small town where it is hooked up to public water and sewer that is AWESOME! If not, there is normally an inspection that must occur in order for USDA to deem the property decent, safe, & sanitary. The water and sewer inspection are normally a surprise for buyers. It normally can delay closing by a few days and it is best if your realtor informs us that it is not hooked up to public water & sewer so we can order the inspection immediately after the appraisal. Remember, USDA just wants to ensure that you are not purchasing a home that is not decent, safe, and sanitary.
Underwriting + requirements…
- First, any requirement by the lender, underwriter, or USDA must be met in order for you to receive a clear to close. The underwriting guidelines are very detailed and this is just a brief overview of USDA.
- Legal capacity to obtain a mortgage loan under Ohio state law.
- Meeting your current credit obligations.
- You must be truthful as integrity is of the utmost importance during the mortgage application process. There can be civil liability, monetary damages, fines, or imprisonment for misrepresentations during the mortgage application process.
What is the USDA mortgage process?
- First, complete a quick application here. This is not the full mortgage application. We will call you (or you can call us) to complete the full mortgage application. (419) 350-8420
- Second, we run a pre-approval. If we pre-approve you under USDA guidelines then we will give you a pre-approval letter. This allows you & your realtor to submit an offer on a home that fits within your budget. The pre-approval letter will state the maximum purchase price, the maximum seller concession, and the mortgage type that will be used to secure financing. The seller can normally contribute up to 6% of the purchase price towards closing costs. This percentage is normally negotiated by your realtor.
- Third, find a home & win! Once you have a sales contract your realtor will send it to us.
- Fourth, the loan application process is where you sign the mortgage application, provide us with income documentation, driver’s license, bank statements, W2 forms, and tax returns. We will use the loan application and supporting documentation to paint a beautiful credit picture for the underwriter.
- Fifth, order appraisal, water/sewer inspection if needed, title, Homeowners Insurance Dec Page. The process of getting the appraisal back can take 3-10 business days depending on the time of year. Don’t worry, during this period of time I will be communicating with you normally via email. I’ll be giving you updates on where we stand and what is coming up next. It is our goal to communicate each step of the way so you know exactly what is going on and what will come next.
- Sixth, underwriting and stipulations. The underwriter will normally request items to be completed such as a verification of employment or an updated paystub. These are called “stips”.
- Seventh, file goes to USDA for approval. Sending a file to USDA and having them review it for a guarantee can take 7-10 business days.
- Eighth, clear-to-close. This means we can set a closing date. You will meet at the Title companies office to sign the closing documents. At closing you become the legal owner of your dream home.
Questions: call me at (419) 350-8420
How can USDA funds be used?
- New or existing residential property to be used as a permanent residence. Closing cost and reasonable/customary expenses associated with the purchase may be included in the transaction
- A site with a new or existing dwelling
- Repairs and rehabilitation when associated with the purchase of an existing dwelling
- Refinancing of eligible loans
- Special design features or permanently installed equipment to accommodate a household member who has a physical disability
- Reasonable and customary connection fees, assessments or the pro rata installment cost for utilities such as water, sewer, electricity and gas for which the buyer is liable
- A pro rata share of real estate taxes that is due and payable on the property at the time of loan closing. Funds can be allowed for the establishment of escrow accounts for real estate taxes and/or hazard and flood insurance premiums
- Essential household equipment such as wall-to-wall carpeting, ovens, ranges, refrigerators, washers, dryers, heating and cooling equipment as long as the equipment is conveyed with the dwelling
- Purchasing and installing measures to promote energy efficiency (e.g. insulation, double-paned glass and solar panels)
- Installing fixed broadband service to the household as long as the equipment is conveyed with the dwelling
- Site preparation costs, including grading, foundation plantings, seeding or sod installation, trees, walks, fences and driveways