USDA Financing

The Real Story…

News and commentary about the real estate market and related topics.
Dave Parrish, ABR ®, CRSA, CSP, GRI, ePRO ®, REALTOR ®, RealtySouth

100% Financing, No monthly MI? 620 minimum score. Does the home you’re looking for qualify?

Imagine getting into a house for nothing down AND getting $8,000 back from the First-Time Buyer Tax Credit … Now that’s a WOW!

I know that sounds like a headline from the boom days, but it’s real and it’s been around for a long time.  It’s been called Rural Housing or USDA financing provided by United States Department of Agriculture under the auspices of the USDA Rural Development Program.

Sometimes good credit and a steady income are not enough to qualify for a home loan at a commercial lending institution, such as a bank or mortgage company. More families and individuals may be eligible to become homeowners with the help of a USDA guaranteed home loan. When the federal government agrees to guarantee a loan, lending institutions can help buyers while incurring less risk. Through USDA’s Guaranteed Rural Housing Loan Program, low- and moderate-income people can qualify for mortgages even without a down payment.

Don’t be fooled by its “rural” name… there are many subdivisions that qualify! Although there are only a few areas of Jefferson County that qualify, almost all of St Clair County qualifies.

Here are the basics:  620 minimum score, no monthly MI (but there is up front “guarantee fee” of 2% that can be rolled into the loan). You can actually finance up to 102% of APPRAISED value (not purchase price), so it could actually be the purchase price plus closing costs depending on how an offer is negotiated!

You do not have to have PRESTINE credit, but you are expected to have a 620 score and 12 months of “clean credit.”

USDA does require that the property be located in a less populated area.  It does not need to be a farm – but it can’t be located downtown either. You can check the eligibility of an address via the USDA web site to see if the property you’re interested in qualifies: http://eligibility.sc.egov.usda.gov/

Interest rates are just a slightly higher than an FHA rate, but without the monthly MI or 3.5% down!

While there is no official “loan limit,” the borrower needs to be UNDER a certain income level…

But don’t be discouraged… the income limits are much higher than you might expect!  Talk to a knowledgeable mortgage broker or a REALTOR® right away to take advantage of the combining of opportunities currently available to the Home Buyer.

You do not have to be a first-time home buyer to take advantage of the USDA Rural Housing Program.

Guaranteed Rural Housing Loans

To be eligible, applicants must:

¨ Have an adequate and dependable income;

¨ Be a U.S. Citizen, qualified alien, or be legally admitted to the United States for permanent residence;

¨ Have an adjusted annual household income that does not exceed the moderate income limit established for the area. A family’s income includes the total gross income of the applicant, co-applicant and any other adults in the household. Applicants may be eligible to make certain adjustments to gross income— such as annual child care expenses and $480 for each minor child—in order to qualify. USDA Rural Development field offices can provide information on the moderate income limits for the areas that fall within their jurisdiction and can provide further guidance on calculating household income. The contact for the Alabama field office is:

¨ Have a credit history that indicates a reasonable willingness to meet obligations as they become due;

¨ Have repayment ability based on the following ratios: Principle, Interest, Taxes, and Insurance (PITI) divided by gross monthly income must be equal to or less than 29 percent. Total debt divided by gross monthly income must be equal to, or less than, 41 percent.