USDA Loan Requirements
A USDA Home Loan from the USDA loan program, also known as the USDA Rural Development Guaranteed Housing Loan Program, is a mortgage loan offered to rural property owners by the United States Department of Agriculture.
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A USDA Home Loan from the USDA loan program, also known as the USDA Rural Development Guaranteed Housing Loan Program, is a mortgage loan offered to rural property owners by the United States Department of Agriculture.
USDA loans in Colorado are only for borrowers that meet the eligibility requirements and the qualifying requirements. They aren’t one in the same.
If you aren’t eligible for the program, you’ll have to look elsewhere. If you are eligible, you must also qualify. Don't worry, though, the qualifying requirements are very flexible.
Eligible USDA buyers may have an option without a required down payment. Property, household and lender requirements still apply, and closing costs and guarantee fees may be due. Compare actual offers to understand upfront funds and total cost.
First, let’s discuss eligibility requirements. USDA loans are available to eligible households meeting income, property and underwriting guidelines; qualifying for another loan does not, by itself, rule out USDA eligibility.
The USDA’s income and property eligibility requirements vary by county, but we’ll discuss generalities here.
On average, 1-4 member households’ income must be $119,850 or less and 5-8 member households’ income must be $158,250 or less. Specifically, each county has a limit based on the area’s median income. Your household income may not exceed 115% of the area’s median income.
In addition to the income eligibility, the property must meet USDA eligibility guidelines. Ideally, the program is to help homebuyers purchase a home in a rural area of Colorado. You may find some outliers on the map that fall into suburban areas, but no metropolitan areas are eligible.
If you are eligible based on the USDA guidelines, you must then qualify for the loan. While the USDA uses household income to determine your eligibility, they only use the borrower and co-borrower's income for qualifying purposes.
Here’s an overview of what the USDA requires:
USDA loan credit requirements vary by lender and underwriting approach. A credit score alone does not guarantee approval; ask about current requirements for every borrower.
If you have a credit score lower than 640, you may still be eligible, but for manual underwriting. Lenders will take a closer look at your credit history, usage, and payments to make a final determination as it’s on a case-by-case basis. They look at the big picture – determining your risk level by looking at how the pieces fit together rather than focusing just on your credit score.
Your USDA repayment income is different from your eligibility income. This is the income brought in by only the applicant and co-applicant.
The USDA-approved lender uses your total income to determine your debt-to-income ratio. This demonstrates your ability to repay the loan. Overall, your debt ratio shouldn’t exceed 41 percent. This means your total debts shouldn’t exceed 41 percent of your income before taxes. Your debts include:
Your lender may look at your housing ratio too or the comparison of your total housing payment to your gross monthly income. On average, they prefer if it’s 31 percent or less.
Even if you find a home in a USDA-approved area, it must pass the USDA appraisal. The goal of the program is to help you afford a decent, safe, and sanitary home. Almost all home types are eligible including new construction, single family homes, condos, townhomes, and manufactured homes.
In addition, the home must have year-round street access, proper water and wastewater disposal, and working utilities throughout the home. The home must also not be used for income-producing purposes. If the home has a barn or other barn-related facilities that aren’t used for commercial purposes, it may be eligible.
USDA loans include mortgage insurance. This is how they can provide 100 percent financing on loans, which means you don’t need a down payment.
The USDA charges two types of mortgage insurance:
USDA loans make buying a home much more affordable for low to moderate income families. If you struggle to find a loan program and will buy a home in a rural area according to the USDA guidelines, it could be a good fit for you.
I have many years of experience working with families and the USDA program. I can help you determine if it’s your best option, if you’re eligible, and how to make the most of the program. I’d be happy to walk you through your options and help you choose the right loan program. Call or email me today for more information.
