There are many things to understand when it comes to financing a home and qualifying for a USDA loan. I’ll explain the most important factors when considering the home you’re buying, the finance company you want to use, as well as what the criteria are 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 estimate your family size and how much money you earn to see if you may qualify for a USDA loan. Generally, a family of four or fewer in Indiana with an income of less than 75,000 will qualify. A family of five or more can earn up to 100k and still qualify for a USDA loan. There are other considerations, such as disabled or dependent children, that you want to discuss as well. Talking to a professional loan officer will help you understand the process a little better.
The second thing is to make sure that the home you want is in a USDA-qualified area. You can Google USDA eligibility and type in the property address to see if the address qualifies. If that doesn’t work, you can ask me or your local lender if the property you like qualifies. Once you get approved through the USDA, your realtor should know which areas qualify and which don’t, so make sure when choosing a realtor you know you’re financing a new home with a USDA loan. Also speaking with a professional loan officer will help you understand more clearly which areas qualify and which do not. Generally, cities with fewer than 25,000 people will qualify. Rural areas also typically qualify as well.
The third step is to meet with a loan officer to get approved. Generally, you’ll need at least a 620 credit score 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. USDA also has strict income qualifying factors beyond gross income. Your debt-to-income ratio is tighter than any other program. Your maximum debt to income generally cannot be more than 41%. Therefore, all of your debts combined plus your new house payment cannot be more than 41% of your total GROSS income. Your loan officer can help you understand, based on your budget, which homes to consider based on value and full payment with taxes and insurance.
Lastly, and linking it to the approval process, don’t be afraid to shop around for some lenders. Don’t talk to 20 loan officers or you will be confused and overwhelmed. Keep shopping with 2-4 loan officers and do business with not only whoever you feel comfortable with, but whoever has the experience to complete the loan, who has a good reputation in the local community (look at reviews and things online ), and who offers the best loan for your situation.
Also remember that the USDA is strict about which house can qualify for the loan. So be sure to ask your real estate agent if the home you love will qualify for USDA!
I hope I have helped you understand the USDA process a little more clearly. If there is anything I can do to help you, please don’t hesitate to reach out.
