4 USDA Loan Requirements to Keep in Mind

Offered by the U.S. Department of Agriculture, USDA loans can be advantageous for many home buyers, whether they’re looking to purchase their first or fifth property. However, like any other mortgage, there are certain qualifications they must meet to be eligible for such financial assistance. While these stipulations are seen as more flexible than those associated with other mortgage loans, they still are important.

HERE ARE FOUR KEY USDA LOAN REQUIREMENTS:

1. The property must be in a rural area.

The USDA loan, which is also called the USDA Rural Development Guaranteed Housing Loan Program, was designed specifically for home buyers in rural areas across the United States to help them afford housing. As a result, only homes that are located in these types of regions would qualify.

The U.S. Department of Agriculture explains that a rural area is:

• “Open country that is not part of, or associated with, an urban area”
• “Any town, village, city, or place, including the immediately adjacent densely settled area, which is not part of, or associated with, an urban area”
• “Two or more towns, villages, cities, or places that are contiguous may be considered separately for a rural designation if they are not otherwise associated with each other, and their densely settled areas are not contiguous”

This means anyone looking to purchase a home in a major metropolis, such as Chicago, Ill. or New York, N.Y., would need to consider other financing options.

2. The property must also be a buyer's primary residence.

USDA loans are not for home buyers who want to purchase a second property. Therefore, if someone is looking to buy a vacation, for instance, a USDA loan would not be a good choice—even if the property is located in a rural area.

As the U.S. Department of Agriculture states, “The property must not include buildings principally used for income-producing purposes. Barns, silos, commercial greenhouses, or livestock facilities used primarily for the production of agricultural, farming or commercial enterprise are ineligible.”

Further, “The site must not have income-producing land that will be used principally for income producing purposes. Vacant land or properties used primarily for agricultural, farming or commercial enterprise are ineligible.”

3. The borrower must earn a certain income.

There are certain income requirements borrowers should remember when inquiring about a USDA loan. As discussed in one of our previous posts, these requirements vary depending on the region buyers want to move to and the size of their family. The type of home—single-family or multi-family—also plays a role.

To find out the income qualifications for a specific area, visit the U.S. Department of Agriculture’s official website. Here, buyers are able to conduct a search based on property type, and then narrow down the requirements by choosing the appropriate state and county. Once that part is completed, buyers need to share other key information about themselves. This includes how many people will live in the household, specifying the number of minors, full-time students and/or those with disabilities.  

4. Credit history should indicate a demonstration of successful loan repayment. 

Compared to other mortgage loan requirements, USDA loans are more lenient when it comes to a person’s credit score. However, that doesn’t mean lenders completely disregard that information, as it can reveal a lot about a borrower. Specifically, credit history suggests how capable a buyer can repay the loan, which is an important detail a lender will take notice of. If it doesn’t look like he or she would be able to make the monthly payments, a lender will likely not approve the application.

Contour Mortgage has been providing various types of loans, including USDA loans, to home buyers since 1993. We take the time to learn as much as we can about our clients so we can help them meet a loan’s qualifications and move into their dream house.

Apply for pre-approval today to get started.