Monday I detailed the VA loan program.
I wanted to give you some info about a lesser used 100% program – USDA.
USDA Loans:
USDA is another 100% loan program. It’s a lending program that is put out by the US Department of Agriculture. The purpose of the program is to promote rural development of housing.
What it takes to qualify for USDA:
There are two fundamental components to the USDA loan. It has geographic and income limits. So, the first thing you need to do is to make sure the house or area you are interested in an approved USDA lending area.
To check to see if the area you are interested in is approved by the USDA you can go to this web site and put in the address: http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do
You will also need to take the income survey on the web site to see if your family is under the threshold for total annual income. The survey is on this web site: http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do
Credit:
You are going to need a 620 to get USDA right now.
Applicants must have a credit history that indicates a reasonable ability and willingness to meet obligations as they become due. A credit history reflecting any or all of the following is considered unacceptable credit history:
More than one 30-day late within the past 12 months.
Bankruptcy or foreclosure discharged less than 36 months.
Outstanding judgments within the past 12 months.
Two or more rent payments 30 days late within the past 3 years.
Outstanding collection accounts with no payment arrangements.
Outstanding tax liens or delinquent federal debt with no payment arrangements.
Accounts converted to collections in the past 12 months.
Clear CAIVRS: The government doesn’t like it when you have defaulted on a government insured loan. They have a database called CAIVRS that they check to see if you have ever defaulted on any government insured loans. These can be student loans, or other mortgages.
Debt to Income Ratio: The debt to income ratios that USDA uses are 29% for the first ratio, and 41% on the back ratio. To calculate the front ratio – you would take your gross monthly income and divide it by the total mortgage payment. The ratio should be 29% or less.
For the back end ratio you would take your gross monthly income and divide it by the total house payment, plus your minimum monthly payment on all of your other debt. The resulting number should be 41% or less. We can go up to 50% on the back end ratio if we get an automated approval.
Advantages of USDA:
USDA loans are 100% loans. No down payment is required!
Low monthly mortgage insurance. At the time of this writing the monthly MI is .40 x the loan amount divided by 12.
Flexible credit guidelines. For the most part most lenders are at 620 and up for credit scores on this program.
USDA loans allow the seller to pay the borrowers closing costs and pre paid expenses (taxes and insurance) at closing up to 6% of the sales price.
Disadvantages of USDA:
There are income and geographic restrictions on USDA loans. Generally USDA loans are not available in large to medium sized cities. Please refer to the map referenced above in this report to see if the property or area you are interested in is qualified for USDA loans.
Things to know about USDA…
USDA has up front mortgage insurance mortgage insurance. It’s a 2.25% fee that they will add to the loan amount. This fee goes to USDA. It doesn’t come out of the sellers pocket or the buyers pocket at closing. USDA will simply add it to the end of the loan. So, USDA will actually be financing 102% of the purchase price. There is also a small monthly MI charge.
That’s it for today!
Have a good day! …and thanks for reading.
Brett
