The United States Department of Agricultural (USDA) offers loan guarantees for homes in eligible rural areas. This loan guarantee is made for up to 100% of the loan value of a single-family home that will be used as a primary residence for a low or moderate-income family. Eligible buyers are allowed to use loan funds to buy a residential property, build a home, or improve a home in a rural area.
Income limits are determined by the location of the property and how many members there are in the family. Check with the professionals at the OKavage Group to learn more about these specifics.
USDA guarantees for loans are only given to U.S. citizens and qualified aliens who have the legal ability to apply for a loan, agree to personally occupy the residence and have a decent credit history. FICO scores cannot be below 640 for automatic approval.
Manual Loan Underwriting for USDA Loans
For those with a FICO score under 640, it may be possible to get a loan that is manually underwritten, depending on the specifics of an individual borrower. For manual underwriting, a person from the USDA is assigned to review the case to determine the ability of the borrower to repay the loan.
The reviewer will take a look at all supporting documents, such as monthly bills and bank statements. A calculation called the debt ratio will be made to determine the maximum monthly amount used for housing expenses including the principal and interest loan payment, home insurance expense, and property taxes. This total may not exceed 29% of monthly income. Other monthly payments may not exceed 41% of income.
The reviewer will want to see proof of dependable income for the prior 24 months with no accounts converting to collections in the past 12 months. Some exceptions may be made for circumstances that were not under an individual’s control such as having a major medical emergency.
Besides offering guarantees for loans, the USDA also makes direct loans for those unable to borrow from traditional sources. USDA direct loans are usually made for homes that have 2,000 square feet or less and have a value that is limited depending on the market area.
USDA loan funds can be used for the following:
- For new home construction.
- To buy an existing home.
- Closing costs.
- Repairs and renovations when buying a home.
- Purchase of the land the home is on or the site where a home will be built.
- Site preparation costs including grading, foundations, fences, driveways, and landscaping.
- Eligible loan refinancing.
- Equipment and accommodations for disabled persons to use a home.
- Connections to utilities.
- A pro rata share of any property taxes due when purchasing a home.
- Household appliances.
- Purchase of equipment and renovations for energy-efficiency upgrades.
The USDA loan approval process can be confusing. Work with the professionals at the OKavage Group to make this process less intimidating.