Understanding USDA Eligibility Requirements
What is a USDA loan and what are the USDA eligibility requirements? A USDA home loan is a zero down payment mortgage that certain homebuyers can apply for. They are handed out via the USDA loan program, by the US Department of Agriculture. If that department and its relevance confuse you, all will be made clearer in just a moment.
You see, this particular loan is aimed at rural homebuyers. It is specifically aimed at people who are buying homes in rural areas, rather than busy urban cities. Clearly, potentially having access to a loan with zero down payments is only going to accelerate growth in the rural property market.
USDA Eligibility: Residency Requirements
There are a series of residency requirements that must be met to ensure you have USDA eligibility. Firstly, these loans are only available for rural properties in certain locations. Thankfully, it's easy to find out if the homes you're interested in are eligible or not. All you have to do is use the USDA map and table². It's simple to use, and you will get all the answers you need from it.
Additionally, you are required to be a US citizen or a legal permanent resident of the country. You will also only be able to get a loan for the home if it is your primary place of residence. As such, it must be the main location that you inhabit throughout your life³.
USDA Eligibility: Income Requirements
Following on from the residency requirements, there are income preferences to meet as well. Primarily, you need to have a stable and dependent income. In essence, you should be able to prove that you earn a certain amount of money every month.
Furthermore, your adjusted household income shouldn't be too much higher than the median income of your area. If it is, you will not qualify for this loan. There are tools online that you can use to figure this out, but it's as simple as adding up your household's income, then applying a tax to it⁴.
Lastly, the USDA eligibility requirements for your income stipulate that you must have a willingness to repay the mortgage. Typically, this is demonstrated by a 12-month period of no late payments or collections on your financial record.
USDA Eligibility: Credit Requirements
Next, you have credit requirements to meet as well. As far as your credit score is concerned, USDA eligibility usually sets 640 as the minimum score. If you hit this, you are considered to be creditworthy enough for the loan.
However, please note that this isn't a strict requirement. Technically, you can still be eligible for a USDA loan with a score below 640. The difference is that anyone with 640 or above will be eligible for automated underwriting. People below the threshold may still be USDA eligible, only they need manual underwriting. So, it could take longer and the rules are slightly stricter.
Interestingly, USDA eligibility can also be granted to people without an established credit score. In these instances, alternative methods are used to see how creditworthy you are. This can include viewing rental payments, bills, and so on.
USDA Eligibility: Special Considerations
Special considerations are taken into account when assessing if someone is eligible or not. Most notably, different homebuyers are given preference over others. The USDA will issue mortgages to applicants that have the most need for the help. This can include families that need safe housing, people who can't get loans from other sources, or households with a median income way below the local average.
All things considered, USDA eligibility is generally available to all for the average person to achieve, but keep in mind not every home qualifies for USDA. First and foremost, be sure you check to see if your house falls in a rural area or not. Some homes in metropolitan areas could still qualify, which is why looking at the map is so essential. We strongly suggest that you read up on the USDA mortgage loan program in your spare time. We have an article on our site that goes through it in detail, helping you understand the ins and outs.
Of course, if you need help applying for a mortgage of any kind, connect with us to discuss further.
Forbes: Data suggests Americans flee to rural areas post-Covid
USDA Map and Table
Investopedia: Principal Residence
TaxAct: AGI Calculator