AL and FL Mortgage News

Can I get a USDA loan?

February 22nd, 2019 4:18 PM by Devin Murray


USDA loans are truly awesome mortgages.  They are widely known for allowing you to finance 100% of the price of a home but that is not their single biggest offering.  Among other benefits when compared to other loan products, USDA loans typically offer better rates, cheaper monthly mortgage insurance, and lower up-front costs especially when compared to FHA.  They are not as complicated to understand and qualify for as many sources tout so this is a quick rundown that might help understand if one is right for you.

 

Unlike any other loan, the property you want to buy (or refinance) needs to be USDA eligible.  There is a huge misconception about what USDA defines as rural and most people are shocked to learn that millions of properties close to major cities are eligible.   You can check a property’s eligibility yourself by clicking here (click “accept”, Single Family from the top menu, and input the address).  If the property is eligible, you need to know if your income is below the limit for the state and county where you are buying (or refinancing) in.  You can check to see if you are beneath the household income limit here.

If your income is within the limit and the property is eligible, you are ready to see if your credit and income qualifies.  There is no way to lay out all the guidelines, but it is important for all to know that USDA sets the floor for credit scores at 580 and they like to see a 680 score or better.  If your scores are acceptable USDA also prefers a few (say 3) established credit accounts as well as 12 months of prior rent or mortgage payment history.   Many lenders will say we are incorrect but alternative tradelines such as utility, insurance, and cell phone account history can be used.  Underwriting a USDA loan manually is something many lenders avoid but we welcome with open arms.

It is true that USDA has tighter debt to income requirements (43% back end debt ratio) compared to FHA (45% and more) and conventional loans (up to 45%), however this one disadvantage is in many cases offset because of better interest rates and monthly mortgage insurance premiums as previously mentioned.

We do not pretend as if two scenarios are ever the same but having this background can help shape your decision making.  If you want a free, no obligation USDA rate quote without applying click here.  If you would like to get pre-approved, you can visit us online 24 hours a day or give us a call at 888-269-8335 during normal business hours 8-5pm M-F.

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