A USDA guaranteed home loan might be a good match if you have a low credit score and you’re looking to buy a house in a rural area. Insured by the U.S. Department of Agriculture, the USDA home loan program encourages rural home purchases and helps low to moderate-income families realize their dream. This loan features affordable terms, making it easier for you to qualify for a mortgage loan.
Qualifying Locations for a USDA Home Loan
Unlike conventional and FHA mortgage loans, which can be used to purchase properties in varying areas, there are location restrictions with a USDA home loan. This particular loan requires the property to be located in a rural area. This by no means suggest buying farmland. In fact, most small towns outside the city limit (with a population less than 20,000) are eligible for the USDA loan program.
A USDA-approved home loan provider can help you determine whether an area is eligible for the USDA home loan program.
Affordable Home Loan Terms
A USDA guarantee home loan can put you a step closer to homeownership. Not only can you enjoy a low, competitive fixed rate – which keeps your home loan payment affordable – this loan allows you to finance 100% of the purchase price including closing costs. This is excellent news if you have zero or limited funds for a down payment and closing. .
Lenient Financial Requirements
Like conventional lenders, USDA loans require specific financial requrements to qualify. However, USDA loan requirements are often less strict than conventional lenders. While many lenders want a minimum credit score of 680 or higher, you can qualify for a USDA home loan with a score as low as 620 if you meet additional requirements.
Your debt-to-income ratio will also be evaluated when applying for a home mortgage. Debt-to-income ratio is the percentage of your monthly gross income, before taxes, that is used to pay your monthly debts. It is determined by first calculating the percentage of income used to pay your housing costs (principle, interest, taxes, insurance, etc.) and then calculating the percentage of income used to pay housing and any other consumer debt such as credit cards, car payments, loan payments, etc.
A common debt-to-income ratio guideline for many lenders is 29/41. That means that no more than 29% of your income is used for housing expenses and no more than 41% is used for housing and consumer debt combined. USDA loans follow this debt-to-income ratio guideline, however, you can still qualify with ratios as high as 36/48 if you have additional positive factors. A higher credit score, established credit accounts in good standing, and a long and stable employment history are some of the factors that will help determine your qualifying debt-to-income ratio.
Buying a house is easier than you might think. Stop wasting money on rent and learn how the USDA home loan program can help you qualify for a mortgage loan