Not sure whether you qualify for a USDA loan? Read on to study the USDA loan requirements.
USDA loans are mortgages sponsored by the US Department of Agriculture as part of its Rural Development Guaranteed Housing Loan Program. Designed for low-to-average income earners, USDA loans offer home financing at below-market mortgage rates, reduced mortgage insurance, and no down payment. The mortgage option, however, is subject to certain eligibility requirements. The following USDA requirements will help you understand whether you qualify for the loan or not.
Area
Before anything else, you need to check where your targeted home is located. To qualify for a USDA loan, it must be located in what USDA considers a ‘Rural area’. This refers to an area located outside of a city or town and no associated with an urban region. Here are the criteria for an area to be designated as a rural area:
- Its population is 10,000 or lower
- Its population is 20,000 or lower; it’s not part of a metropolitan statistical area (MSA); is subject to serious lack of credit for low to moderate-income earners
- It was once classified as a rural area but lost this status due to the 2010, 2000, or 1990 Census and its population is 35,000 or lower; the area is subject to serious lack of credit for low-to-moderate-income families.
Home Requirements
Based on the requirements of the USDA loan, the home you want to buy must be structurally strong, in good repair, and functional. To verify whether a home meets these requirements, a qualified appraiser will examine the property, paying attention to the following aspects:
- The home and its foundation must be structurally sound for the mortgage term
- Plumbing should be functional and the water pressure should be high enough to allow for waste removal
- The home should be easily accessible to an all-weather or paved road surface
- The roof should have sufficient minimum economic life as well as prevent moisture intrusion
- The home’s electrical system should be updated to date with no exposed or frayed wiring. It should be able to power typical appliances and functions based on the size of the home.
- Cooling and heating systems must also be functional.
Property Requirements
It’s important to note here that the home you’re planning to purchase must serve as your primary residence. The types of properties that are eligible for USDA loans include new construction, townhouses, and condos, modular or manufactured homes, short sales, or foreclosed homes. While investment properties such as farms, vacation, or rental homes aren’t eligible for USDA loans, a residential property with barns, acreage, and silos may still qualify if it’s no longer in commercial use.
Income Requirements
To be eligible for a USDA loan, your income should be no more than 15% of the local median income.
In addition to the above, there are other USDA loan requirements borrowers must meet such as the ‘ability to repay’ standards. These, including those discussed above, may prove overwhelming for an ordinary home buyer, so it’s best to hire a mortgage broker for assistance.
