There is a lot to understand when trying to get financing for a home and qualify for a USDA loan. I’ll explain the most important factors when considering the home you are buying, the finance company you want to use, as well as the criteria for getting pre-approved.
The first and most important thing to know is that there are strict income qualifying factors. By going to the USDA eligibility site, you can actually calculate your family size and how much money you are making in order to see if you can even qualify for a USDA loan. Typically, a family of four or less in Indiana with an income of less than 75,000 will qualify. A family of five or more can earn up to 100,000 people while still being eligible for a USDA loan. There are other considerations like disabled children or dependents that you want to consider. Speaking with a professional loan officer will help you better understand the process.
The second thing is to make sure that the home you want is in a USDA eligible area. You can Google USDA Eligibility and type in the property address to see if the address is eligible. If that doesn’t work, you can ask me or your local lender if the property you like will qualify. Once you are approved through the USDA, your real estate agent should know which areas are eligible and which are not. So make sure when choosing a real estate agent that they know that you are financing the purchase of a new home with a USDA loan. Also speaking to a professional loan officer will help you more clearly understand which areas are eligible and which are not. Typically, cities with less than 25,000 inhabitants qualify. Rural areas are also generally eligible.
The third step is to contact a loan officer for approval. Usually, you will need at least a credit score of 620 to get a USDA loan. Some lenders go down to 600, but it’s harder to get approved with lower scores and most professional loan officers won’t because there’s a chance you won’t close. The USDA also has strict income qualifying factors beyond gross income. Their debt-to-income ratio is more stringent than any other program. Your maximum debt to income usually cannot exceed 41%. So all of your combined debt plus your new home payment cannot exceed 41% of your total GROSS income. Your loan officer can help you figure out, based on your budget, which homes you should review based on value and total payment with taxes and insurance.
Finally, and in connection with the approval process, don’t be afraid to shop around for a few lenders. Don’t talk to 20 loan officers or you’ll be confused and overwhelmed. Continue to shop with 2-4 loan officers and do business with not only who you feel comfortable with, but who has the experience to get the loan, who has a good reputation in the local community (watch reviews and things online), and who offers the best loan for your situation.
Also remember that the USDA is strict on what the home can qualify for the loan. So be sure to ask your real estate agent if the home you love will qualify for USDA!
Hope this helped you understand the USDA process a little more clearly. If there is anything I can do to help you, please do not hesitate to contact me.