How To Qualify For A USDA Loan

If you’re looking for an affordable way to buy a home, consider using a USDA Rural Development Guaranteed Housing Loan. This federal program reduces interest rates and lets people take out mortgages without down payments. The government cooperates with lenders to make this possible. Despite its name, you don’t have to work in agriculture to benefit from this type of loan. You will, however, need to meet specific income, credit, location, and housing criteria to qualify.

Residency

Two different types of U.S. residents are eligible. You can apply for a USDA loan if you’re a United States citizen. If not, you must be a non-citizen who has achieved permanent residency. People with green cards satisfy this requirement.

Earnings

Your income can’t exceed 115 percent of local median earnings. For example, the Census Bureau reports that the median income in Jefferson County, Alabama is $53,901. This figure rises to $61,986 when you add an extra 15 percent. However, the exact cap varies depending on how many people live with you. Dependents, seniors, or disabled individuals may increase the limit. You also need to have a reliable source of income to ensure that you can make the monthly payments.

Loan

Housing

The government may expect you to provide details about your current housing situation. You might qualify for the program if your existing home is dangerous or seriously deficient in some way. The same holds true when you can’t obtain a conventional mortgage. However, the USDA may waive these requirements if your earnings are low enough. This income limit differs based on the location where you currently reside.

Properties

The desired house also needs to qualify for the program. It can’t include commercial buildings, a pool, or excessive amounts of land. The USDA normally doesn’t approve homes with luxurious amenities or interior space surpassing 2,000 square feet. A house mustn’t have serious defects, and it needs to provide a source of clean drinking water. It has to serve as your main residence. The location generally must be rural, but some suburban properties qualify. A borrowing limit of $285,000 applies in many areas, including Alabama.

Credit

Applicants typically need credit scores of at least 640, but some individuals with lower ratings or blank credit records are still eligible. They often have to document on-time bill payments and provide additional references. If you already make loan or credit card payments equaling more than 41 percent of monthly earnings, you’ll probably need a score of at least 690. The USDA wants borrowers to spend a maximum of 29 percent of their income on housing (mortgage, property taxes, and insurance premiums).

If you live in Alabama and want to take out a USDA loan, First Lenders can assist you. We participate in the program, and our staff has experience helping people apply for it. Borrowers benefit from our comprehensive expertise; we’ll quickly determine if you qualify and recommend the best financing options available to you.

For excellent customer service and affordable solutions, please contact our Homewood or Albertville office today.