What is your opinion about USDA loan program? Has anyone asked you this question and were you taken aback by the name itself? You’re not alone. Many Americans are still unaware that such an affordable and cost-effective loan program exists. These loans are one of the easiest way to get financing if you’re looking to buy a home. All you have to make sure is that you qualify to the guidelines of USDA loans programs. And, when you do, you can take advantage of 100% financing, zero down payments and low closing costs, among other benefits.
Not having to pay any down payment is an excellent option for many home buyers who either don’t have much savings or don’t have enough income to support it. USDA loans are supported and insured by the U.S. Department of Agriculture and the focal point of this loan program is “no money down” financing. Apart from this, USDA loans are like any other home loans which have a repayment schedule, closing costs but you’ll never have to bear pre-payment penalties. No counselling is required to get the loans approved and it is available for first time buyers as well as repeat buyers.
USDA Loan Requirements
To qualify for a USDA loan the requirements are as follows:
- The property to be financed should be located in one of the USDA designated rural areas. If you have confusions you can take help from the Federal Home Loan Centres Counsellors to determine whether the property is eligible or not.
- USDA loans are available for people who wish to use the property as primary residence. No financing is available for second homes or investment properties.
- Both first time buyers and repeat buyers can avail this loan programs. The applicant cannot own another house at the time of purchase.
- The total purchase price along with the upfront MI can be financed through USDA loans
- Though USDA does not define any minimum credit score requirements, the applicant should have a decent credit history. The lender would determine how much you are eligible to get depending on the debt-to-income ratios, so that you can repay conveniently.
- The income for the applicant should not exceed 115% of the AMI (area median income).
- W2 income or self-employment is approved by USDA. You should be able to provide documents for income and employment.
- Gift of closing costs is allowed by USDA
- The sellers and lenders are allowed to contribute towards the closing costs but not more than 6% of the total sales price.
- Loan term is 30 year fixed rate.
Since USDA loans are dedicated to rural development, it is essential that you qualify to all the guidelines. USDA has devised these guidelines to identify the eligible families and provide support to help them buy a clean and decent dwelling. USDA home loans are available for people having low to moderate income and who are willing to buy a property in the rural areas of the country.
If you are unsure about your eligibility to USDA loans, you can ask for pre-qualification from an approved lender like us. You’ll have to submit the estimates of your finances, assets (if any) and other information. We can then evaluate all these information to determine whether you qualify or not. We’ll also let you know the factors that would stop you from qualifying for USDA loans, so that you can improve them to get approved.
USDA upgrades the eligibility for each state and county on regular intervals, to ensure that the areas that have developed and progressed considerably are removed and areas those are still to be developed are included within the eligible areas. So before your area loses eligibility take advantage of the best loan option available to you.
To know further about the USDA requirements give us a call or fill out our online enquiry form today!
USDA Appraisal Guidelines
An appraisal is required on any home loan purchase transaction to show the current market value of the property. With a USDA home loan, the appraisal is ordered through an appraisal management company that locates an appraiser to go out and appraise the property.
USDA appraisals generally range in costs from $450 to$ 550 depending on the area and appraiser availability. This is an expense charged to the buyer’s credit card directly from the appraisal management company. A copy of the appraisal report is delivered to you upon receipt. Appraisal reports are typically good for a period of 90-120 days.
USDA appraisals follow FHA/HUD Guidelines and must be performed by an FHA licensed appraiser. In the body of the appraisal report, the appraisal must state the property meets FHA/HUD Handbooks 4905.1 and 4905.2.
All utilities to the property need to be on when the appraiser goes out to complete the visual inspection. If the utilities are not on, the appraiser is not able to test the electrical and mechanical systems to ensure they are functioning properly and will need to go back out for a final inspection once the utilities are turned on. Most appraisers will charge the homebuyer an additional fee ranging from $100-$150 for the final inspection so it is very important to check with your realtor and/or seller to verify all utilities are on prior to the appraisal inspection.
If the property you select has a pool, the appraiser is not allowed to give any value to the pool that will contribute to the total property value. This can be a potential issue if the value of the home without the pool is less than the sales price. This would require the homebuyer to bring the difference between the property value and the sales price to closing.
USDA will not guarantee a home loan if a property is located in a 100 year flood plain. Ensure to check with your realtor and/or seller if property is in a 100 year flood plain before submitting an offer.
Last but not least, property must be located in an eligible area. You can easily verify if a property is eligible or not by going to USDA Property Eligibility.
Check with your USDA Home Loan Specialist if you need any assistance determining property eligibility.
USDA Required Inspections
Typically, we only require a full appraisal and termite inspection on each USDA Home Loan. However, if the property has a water well as its main water source, a well water test will be required.
Description of Inspections:
- The Appraisal is a inspection that is done to determine the market value of the home. Typically, this ranges in costs from $450-$500 depending on your area. The appraisal department will select the appraiser.
- The Termite Inspection is an inspection that is done to determine if there are any wood destroying insects present. Typically, this ranges in costs from $75-$125 depending on your area. You can select any termite inspector you wish to use and pay the fee directly to them.
- The Well Water Test is a chemical and bacteria test done on the well water to ensure water is safe for drinking. This is administered by a local water testing facility and the fee is paid directly to them.
*Additional inspections may be required.
USDA Eligible Property Types
USDA Home Loans are available on single family residences and town homes.
The property must be a standard stick built home. Property can be newly built or a resale of an existing home.
We do not currently offer this program on manufactured or mobile homes.
- The property must be located in a USDA eligible area.
- Cannot be located in a 100 year flood plain
- Must meet HUD Handbooks 4905.1 and 4905.2.