USDA – Rural Development loans were designed to help people living in more remote areas and smaller towns, with less income earning potential, therefore making it harder to save up down payment. For example, towns that qualify in this area are Elkhart, Polk City, Bondurant, Huxley as well as other areas throughout the state of Iowa. Individuals and families that can show they have the repayment ability and decent credit history to purchase a home have to meet two tests to qualify for a guarantee USDA Rural Development mortgage:
- The total family income must not exceed moderate income limits (80% of the area median income of the county where the property is located). This is updated annually; ask your loan officer. Low and very low income families may qualify for a loan direct from the USDA.
- The property must be located in a geographically eligible area. Generally there is distance from and open space between a larger town. There is a map of eligible areas; ask your loan officer.
Here are some of the highlights of a USDA home loan:
- Typically the homebuyer or homeowner can have a lower credit score than a typical conventional buyer however underwriters like to see at least a 640 credit score. If there are extenuating circumstances and compensating factors an applicant can obtain a USDA mortgage with less than a 640 credit score. The most important thing is that you’ve made payments on time for the prior 12 months. They look for a pattern of timely repayment. If you can show you’ve paid your utilities, cell phone, insurance or paid into a savings account every month that can help. Generally you need to have been discharged for 3 years if you have file bankruptcy and rebuilt good credit.
- There is no down payment required!
- Typically the family debt-to-income (DTI) should be 45% or less.
- There is no Mortgage Insurance required! The USDA does charge a service fee that is included in the monthly payment but it is far less than the FHA MI (mortgage insurance). They also charge an upfront fee that can be rolled into the loan.
- USDA also allows for closing costs to be rolled into the loan if the appraisal supports the additional fees.
- When refinancing USDA will allow up to 100% of the value of the home refinancing a current USDA mortgage to lower payments.
In summary, a USDA loan is an excellent starter loan for first time homebuyers living in smaller towns that don’t have savings for a down payment.
Ready to see if you qualify? Give us a call at 515-327-9938 or fill out the short form above to have a loan officer contact you today.