USDA Rural home loans are one of two last remaining 100 percent home loans still available in Florida. The other option is a VA loan which requires current or past military duty. As with any mortgage, there are groups of specific requirements that must be met before an applicant is approved. USDA Loan eligibility requirements in 2016 have a few main components:
USDA Credit Requirements
When applying for a USDA rural loan, the lender will pull the borrower’s credit report from all three credit bureaus. This is called a tri-merge credit report. The lender then looks at credit scores and the credit history to determine if the applicant is eligible, credit-wise.
To get an approval, the borrower must to have a middle credit score of at least a 620 and have no late housing payments for at least one year. If the applicant had a bankruptcy or foreclosure in their past, they must show that an acceptable amount of time has passed since then.
USDA loan credit requirements use the following conditions for approval:
- Middle FICO credit score of 620 or above.
- No late payments in the last year.
- No outstanding judgments in the last year.
- All bankruptcy payments made on time during the last year (Chapter 13).
- At least three years passed since a foreclosure or bankruptcy (Chapter 7).
USDA Debt-to-Income Ratios
The first DTI ratio used by USDA loan qualifications is known as the “Top Ratio”, or “Front Ratio”. This ratio measures the borrower’s total income against the new housing payment including principal, interest, taxes and insurance (PITI). To qualify, the proposed new payment PITI cannot exceed 29% of the borrowers income.
The second DTI ratio, known as the “Bottom Ratio”, “Back Ratio” or “Total Debt”, weighs the borrowers total debt load, including the new housing payment against the borrowers total income. To qualify, the total of the borrowers new proposed monthly debt load, including housing payments, credit cards, car notes and student loans cannot exceed 42% of their total documented income.
Maximum Household Income Limits
And since USDA loan guidelines also have maximum limits set for borrower incomes, they must also show that they don’t make too much money to qualify. The more popular Section 502 Guaranteed Loans contain maximum income limits of 115% median household income for the area . Maximum income limits vary from county to county, but the general limit for a household of (4) is around $75,000 per year. Figuring USDA loan income eligibility can a little tricky so it’s smart to find an experienced USDA mortgage lender to assist you. Remember these income limits go by all the members in the household that receive income, not just those applying for the mortgage.
In review, the following income and employment guidelines must be followed for approval:
- The applicant must have a dependable two-year employment history.
- The applicant must meet USDA debt-to-income requirements of 29/42 using documented income.
- 29% Top Ratio – The new proposed housing payment with PITI may not exceed 31 percent of the applicants combined monthly income.
- 42% Bottom Ratio – The applicants proposed new monthly total debt load, including new housing payment, may not exceed 41 percent of their combined monthly income.
- The applicant’s adjustable income must be less than maximum allowed income by USDA RD for their area.
USDA Property Requirements
For a property to be eligible for a USDA, it must be located in an approved rural area, as defined by the USDA. The application of “Rural Area” can be quite loose and there are thousands of towns and suburbs of cities across America that are eligible for USDA financing.
In general, areas approved for USDA loans are located outside the limits of cities and towns with a population of 10,000 people or more. Properties located in towns with a population of less than 10,000 may also be considered eligible. To be certain if a property is eligible for a USDA home loan, applicants can check the address of the subject property on the USDA Property Eligibility Website. The subject property must pass an appraisal inspection by an approved appraiser to obtain USDA financing. The appraisal requirements for USDA loans are very similar to those for FHA loans. The requirements are so similar, in fact that an approved FHA appraiser will perform the USDA property appraisal. The appraiser will make an value assessment of the property, which must meet or exceed this proposed loan amount. He or she will also look for other things about the home that could create problems such as structural issues, a leaky roof, missing paint and plumbing problems.
USDA Loan Costs and Fees
USDA loan fees are extremely competitive when compared to other low down payment mortgage programs. There are two fees involved with having a USDA loan, both of which can be paid over time.
The first fee is known as the Up Front Guarantee, which is figured by calculating 1% of the proposed loan amount and then adding that figure to the loan balance to be paid over time. For example, if your proposed loan amount is $100,000, the Upfront Guarantee Fee would be $1,000, which is rolled into the principal balance for a total mortgage amount of $101,000.
The second fee is the Annual Fee, which acts in the same way as monthly mortgage insurance. The annual fee is tallied each year by calculating 0.35% of the remaining principal balance. That amount is then divided by 12 and added to each monthly payment.
In recap, the fees charged by USDA Rural Development can be outlined as follows:
Up Front Guarantee Fee
- Upfront Guarantee Fee equals 1% of the loan amount for purchase and streamline refinance
- Up Front Fee can be rolled into loan amount
- Annual Fee equals 0.35% of the remaining mortgage balance, which is divided by 12 and added to monthly payments.
- Appraisal Fees, Inspection Fees, Survey Fees and Pest Inspection Fees
- Lender Origination Fees and Discount Points
- Closing Costs such as State and Local Taxes, Recording Fees, Title Fees and Escrows
One of the biggest advantages of USDA loans is the ability for the seller to pay all of the closing costs, thus allowing a buyer to close on a home with little to NO money out of pocket. To learn more please call us at 904-810-2293 or just fill out the Quick Request form on the left side.