USDA mortgage financing
The USDA mortgage program continues to be available to many borrowers in the Upstate, and can be an excellent choice, providing the borrowers and the property meet the requirements and guidelines for the loan. Here, Mark Wells of Preferred Financial Services discusses the various aspects of the program.
I have heard of RDA loans, but not USDA loans. What is the difference? They are the same program by different names. The loan program is insured through the U.S. Department of Agriculture (USDA), but it is administered through the Rural Development Administration (RDA) division of USDA. It is also known as the Rural Home Loan program.
What are the advantages of the USDA loan program? It is the only program left for non-military veterans that offers 100 percent financing—no down payment required. It also has a much lower PMI premium than FHA, resulting in a lower overall payment.
What are the qualifying guidelines for USDA loans? Two years ago, USDA enacted new guidelines that tend to be a lot more rigid than the previous guidelines. There is a 620 minimum credit score (no exceptions) and the new debt-to-income ratio guidelines require that the house payment not exceed 31 percent of the borrower’s qualifying income, while total debt cannot exceed 41 percent of qualifying income. Despite the stated 620 minimum, we have found that USDA’s automated underwriting system (GUS) will rarely approve a loan under a 640 score.
Are there any exceptions to the ratio guidelines? With “compensating factors” the housing ratio can be increased to 34 percent. Compensating factors include higher credit scores, more liquid reserves, and a less than 25 percent increase in housing payment compared to the borrower’s current rent payment.
What other guidelines should I be aware of? Number one, the property must be in a geographical zone that is determined by USDA to be “rural” in nature. (Fortunately, there are still large areas deemed “rural” in Upstate South Carolina) Secondly, the household income must be less than the limits set by USDA for each county. (Most Upstate counties fall under a maximum four-member household income allowance of $78,100 per year). Finally, USDA requires the appraiser to do a minimal inspection of the property to make sure it conforms to USDA standards in regard to insulation, electrical, structural, and environmental condition. USDA requires that the house have insulation to area standards, a circuit breaker box for electricity rather than a fuse box, five years’ remaining roof life, no unfilled oil tanks on the property, and minimum bedroom window sizes allowing for fire egress.
All things being equal, a $140,000 house that is USDA eligible will cost the borrower about $75 less per month than if they used FHA financing, plus the USDA program does not require any down payment from the borrower.
I am happy to check any property for USDA eligibility, and can pre-qualify any borrower who wishes to look into this unique program.
I can be reached at 864-235-9596 or via email at Mark@TheGreatestRates.com.
Or Text Me Now! 864-430-4856.
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