USDA Loan Requirements & Benefits
If you don’t have a large down payment this loan may be for you – USDA loan requirements allow no money down and there are several areas in Gainesville that qualify. The program’s official name is the “USDA Rural Development Guaranteed Housing Loan” program. They are generally referred to as “USDA loans”, and are insured by the U.S. Department of Agriculture. There are some advantages as well as restrictions with USDA financing. We have outlined below the advantages as well as disadvantages and requirements to help you determine if a USDA loan is right for you.
Advantages of USDA Financing
100% financing. There is no down payment requirement – You can borrow the full purchase price of the home with a USDA loan. There is a funding fee of 2% that can be financed into the loan, on top of the purchase price. In addition, other items including closing costs can also be financed if the appraisal is high enough. For example, John and Leslie have a agreed to purchase a home for $100,000, but the home appraises for $103,000. USDA allows them to borrow $103,000 plus the 2% for the funding fee, using the $3000 to pay down consumer debt, pay closing costs, or purchase new furniture.
Seller can pay for closing costs. Under USDA loan requirements, the amount of closing costs the seller can pay for the buyer is limited to 6% of the purchase price. In our example, John and Leslie could ask their seller to pay $6000 toward buyer closing costs (6% of the $100,000 purchase price).
Credit Leniency. If the buyer’s FICO score is above 620, no credit explanations are required, except in the case of bankruptcy, foreclosure and defaulted federal debt. Alternative credit can be used for those without substantial credit. Landmark Mortgage Planners has even successfully processed USDA loans where the buyer is just 1 year out of bankruptcy, but has an excellent explanation and strong re-established credit.
Generous Debt Ratios. The housing ratio according to USDA loan requirements can be up to 29% of gross income. Total debt can be 41% of the buyer’s gross income. If John and Leslie make $5000 each month, then they would be allowed a mortgage payment of $1450 (5000 x 29%), as long as their other debt exceed the total debt ratio. Our Landmark Mortgage Planners can help you determine if you qualify for a USDA loan, and compare other programs to determine the best option for you. We will also determine the maximum home price that you can be approved for and provide a pre-approval letter.
No reserves. Buyers are not required to have seasoned funds, bank statements or even bank accounts.
Not limited to 1st time buyers. The only restriction is that buyers using USDA financing cannot own a suitable property in the local commuting area.
No title seasoning. Many programs, like FHA, require that the seller of the property own the home for 3 to 6 months or longer. There are no title requirements for USDA loans.
Lowest Payment next to VA. Great rates are available through USDA Loans. They also offer 30 year fixed terms and less eligibility issues than VA or many other programs.
USDA Loan Requirements (Fall 2014)
The property must be located in an eligible area. Only certain areas of Gainesville qualify for USDA financing. To determine if an address qualifies for USDA financing check the USDA official site, and select Single Family Housing Guaranteed, Property Eligibility and then enter address for a specific property. As you can see a great deal of the outlying Gainesville / Alachua County area is eligible for USDA financing.
USDA Loans cannot count any value for a swimming pool. The appraised value of the home must be high enough to cover the purchase price without the pool. For instance, if a property appraises for $150,000 and the appraiser assigns $12,000 value to the pool, then the maximum base loan amount would be $138,000. Unless the buyer wants to put money down to cover any difference, this would be the maximum purchase price. In this instance, the 2% USDA funding fee is the only fee that could be added on top of the base loan amount of $138,000.
The household income must be within USDA loan limits. Keep in mind, this is not just the applicant’s income but all income in the household. Click to use the USDA easy income calculator and select Single Family Housing Guaranteed then Income Eligibility.
It is always a good idea to meet with a Landmark Mortgage Planner to get pre-approved before you look for a home. Your mortgage planner can help you determine which products you qualify for, answer all of your questions, and help you decide on the best mortgage for you.