All About USDA Loans & How to Get One

USDA loans are perfect if you want to live in the country or long to move to a rural area. Thousands of suburban homebuyers take advantage of this no downpayment loan with appealing interest. In fact, many people who thought they’d always be a renter are happy to find out they can actually buy a home with a USDA loan. And don’t think you have to live in the middle of nowhere. In many cases, you can find a property to buy within a short drive from work, depending on where you live.

What is a USDA Loan?

The United States Department of Agriculture created the USDA Rural Development Guaranteed Housing Loan Program to increase development in underdeveloped parts of the US. This type of loan is based on location and is for borrowers with low to moderate-income.

The most appealing thing about this loan is you don’t have to put any money down. The only other government loan that offers 0% down is a VA loan, reserved for veterans. With the USDA loan, it’s mainly based on property location. So, you won’t be able to finance a home in the middle of a big city like Dallas with a USDA loan. The other huge advantage of this loan is interest rates are generally lower than conventional loans.

Since these loans are 100% financed, the government still wants a little bit of extra insurance that they’ll get paid. So, borrowers will have an up-front funding fee that can be financed into the loan. Plus, monthly Private Mortgage Insurance (PMI) is built into the loan payment. These two fees protect the lender and are lower than FHA’s funding fees and PMI.

USDA Loan Requirements

Here are the primary loan requirements for a USDA loan:

Location – approved rural area. If you’ve found a home you’re interested in, you can check it on this map to see if it’s eligible.

Credit Score – Generally, you’ll need a score of 640 or higher. If your score is a bit lower, talk to your loan originator at Total Lending Concepts in Colorado Springs. They can give you tips on how to improve your score. And sometimes it doesn’t even take that long.

DTA – Debt-to-Income Ratio – One of the things the underwriter will look at is your debt compared to your income. Liabilities include your house, credit cards, auto loans, alimony, garnishments. Then, they compare that to your income. Here’s an example:

• Your gross income is $4,000 a month.
• Your debts are $1,000 a month. These include a $200 truck payment; you don’t have any credit cards and $800 for your new mortgage
• Divide the $1,000 of debts by your gross monthly income of $4,000 gross monthly income for a DTI ratio of 25%.
• Generally, 41% is about the maximum debt-to-income for a USDA loan.

Primary Residence – These loans are only available if you’re going to live in the home as your primary residence. They’re not for investment properties.

USDA Loan Map

It’s simple to see if a home you’re interested in is in the USDA approved area. Check out this USDA loan map and put the address in the search box. You’ll be able to see if you could get financing on that particular property. You can also see what other areas are approved.

Total Lending Concepts provides lending in Arkansas, Colorado, Florida, Indiana, Kansas, Louisiana, Missouri, New Mexico, Oklahoma, Tennessee and Texas. Needless to say, we’ve had lots of experience with USDA loans and are ready to help you!

USDA Loans – Income Limits

Since these loans are for low to moderate-income borrowers, there are limits to how much you can make.

Here’s a USDA income limit chart that goes over the income limits based on how many people you have in your household. The more in your family, the higher the income you can have.

You can search by state and county here.

Now that we’ve told you the ins and outs of this appealing 0% down government loan, are you ready to get started? Contact us today to apply for a USDA loan.