When you think of the United States Department of Agriculture (USDA), you probably think of food safety and meat-processing plant inspections. But did you know the USDA is also in the business of home loans? The USDA loan program was formed to help families in rural areas become homeowners in order to create strong communities and better lives. So they offer home loans to low- to moderate-income families at great rates and with no down-payment requirement. If you’d like to take advantage of this opportunity, here’s what you need to know about USDA loans when buying a home in Floresville. The main criteria for a USDA loan is the population of the area where the home is located. Wilson County and many of the rural South Texas counties are USDA eligible. But while a county may be eligible for USDA loans, it is possible that some of the cities in that county aren’t. It is because of the population size of that particular city. Cities the size of Seguin in Guadalupe county are too large but a majority of the rest of Guadalupe is eligible. Atascosa county is another county in South Texas that is eligible. Some of the areas in Bexar County are eligible but it depends upon meeting the guidelines. Normally that can be determined by zip code.
Overview of USDA Loans
If you’re considering getting a USDA loan for buying a home in Floresville, then you need to know what it is and a little of the interesting history.
“A USDA loan is a government-backed, no money down mortgage with government-assisted mortgage rates, which means you can get lower rates than with similar government-backed programs like FHA and VA. Since USDA loans don’t require a down payment, you can borrow the sales price if that home is in a rural or less densely populated, area.” In other words, a zero down loan that also has a fee for the loan which is added to the loan. There are loan dollar caps on the property based upon the location. So that loan amount cap will vary from county to county.
The rural definition is governed by population so even if a location is close to San Antonio does not mean that area is ineligible. It doesn’t just mean a farm or ranch area; it can be any area.
USDA loans got their start in 1949 when housing was in short supply and millions of people were forced to share homes after World War II. Recognizing that homeownership could build communities and create jobs (along with tax revenue), the USDA implemented the American Housing Act, which resulted in the construction of millions of new homes.
But people had to be able to buy these many new homes. So the government-backed USDA loan program was created.
USDA Loan Requirements
There are, though, some fairly exact requirements for buying a house with a USDA loan. These are . . .
- Location – If the area meets the population guidelines the area is eligible.
- Income – To be eligible, you must have a household income below the USDA limits for the specific area. “The limit is 115% of your area’s median income. If your area’s median income is $50,000, you can’t earn more than $57,500.”
- Property – USDA loans are for primary residences only. This can include manufactured homes. But a second home or an investment home is not eligible.
- Fee for the loan that is rolled into the loan. Because this fee is rolled into the loan, the amount financed is larger than the sales price. That is factored into the appraisal.
Qualifying Criteria
Buying a home with a USDA loan also means that you’ll have to meet certain qualifying criteria, such as . . .
- A credit score of at least 640 (which is slightly higher than that required for conventional loans at 620)
- A debt-to-income ratio (DTI) of no more than 41% (which is a little stricter than the DTI required for most conventional loans and certainly FHA loans)
- A provable record of at least two years of steady employment
The good news, then, is that “if you meet all of those requirements – and if your home purchase price does not exceed the home’s appraised value – you could buy the home with no money down.” The area, your income and the sales price all factor into USDA loans.
** Each lender does have different criteria that may vary somewhat from the above information such as credit score or possibly DTI.
Process of Buying a Home With a USDA Loan
Now when it comes to USDA loans and actually buying a home with a USDA loan, here’s how the process typically goes . . .
- Pre-approval – “The pre-approval process shows how your application would perform in a real underwriting process. You’ll get a good idea about your price range and monthly payment size without making any commitments.” You need to have a lender who does USDA loans.
- Finding an eligible house – Typically, an eligible house will be a single-family home in a city or town with a population that qualifies. (To make sure the house you’re interested in qualifies, consult a Floresville agent at (210) 216-7722.) It is fairly easy to determine as the USDA website has links to question based upon address.
- Loan application – After getting pre-approved, finding a qualifying home, and making an offer, your next step is “to apply for the USDA rural development plan.” This varies from area to area as each area has price points that apply to them. So a price point is not something that transfers say from county to county. It is based upon different criteria such as average income or median income for any area governing what amount can be loaned.
- Following the loan officer’s instructions – “Your loan officer will guide you through the process of uploading financial data for the underwriting process. Be sure to respond to your loan officer’s request for more information as quickly as possible.” The response you give your lender is a factor in how fast they can process your loan and remove any obstacles to getting you closed on time.
- Home inspection and appraisal – At this point the home inspection takes place. You should have an inspection done. That allows you to ask for any needed repairs that the seller may agree to make or to decide what other options you would want to take as a buyer. As part of the appraisal process, the USDA will check out the home you’re buying to make sure it provides minimum safe living conditions as part of their appraisal process. There are USDA guidelines for the things that are acceptable in the property for the loan to be completed as well as appraising for the value. It is very similar to an FHA loan requirements.
- Closing – This is the final step when you get the keys to your new home. “If you’re happy with the home inspection – and if your lender’s underwriters are satisfied with your financials and the appraisal – it’s time to make the home purchase official.”
- Typically the USDA loan is a longer process than loans such as FHA, VA or conventional loans. Because of that some sellers will not choose a buyer with a USDA loan if they have other offers. The other factor that affects USDA loans can be the time of year. Because the down payment is funded by the government as it gets closer to the end of the government’s fiscal year the fund may run out of money. So the earlier in the year that one uses the USDA program the less problems one may have.
We’re Here to Help
The beauty of buying a home with a USDA Loan is that the USDA “guarantees your mortgage to your lender. By doing this, your lender knows that your payment will get made. This provides lower risk to the lender, allowing them to offer lower interest rates with no down payment.“ The difficulty lies in the slightly stricter lending standards and the fairly narrow property-qualifying criteria. But we’re here to help.
We have experienced agents who can help you find qualifying houses and guide you through the process. If you’re looking at buying a house in Floresville and are considering a USDA loan, contact us today at (210) 216-7722.
Floresville Real Estate Agent – Faye Y Taylor Realtor® is here for help and to answer any questions you might have
Serving all of Wilson County and the South Texas area