828.348.1907 Zachery@GoPrime.com
USDA Loans – Everything You Need to Know

Written by Zachery Adam

November 8, 2021

USDA Loans

Everything You Need to Know About USDA Loans  

There are many paths to homeownership in the US. One is the Section 502 Guaranteed Loan Program, also referred to as a USDA loan. In short, it assists approved lenders to provide low- and moderate-income individuals a chance to own a primary residence in eligible rural areas. Some applicants can elect to build, purchase or rehab an existing home or even relocate an approved dwelling within the eligible rural area, all with 100% financing. There’s a lot more to a USDA loan than just the basic definition. Here is what you need to know about USDA loans in Western North Carolina.

Who Can Apply

There are a few requirements for individuals applying for USDA loans.

The minimum requirements for the loan include:

  • Being a US citizen or legal permanent resident
  • A credit score of at least 640
  • A stable and dependable income
  • Willingness to repay the mortgage with 12 months of no late payments or collections
  • Adjusted household income equal to or less than 115% of the area median income
  • The property is a primary residence in a qualified rural area

Lenders may have their own qualifications as well as those established by the USDA.

What Makes a Location Eligible

USDA loans cover rural areas. In Western North Carolina, that can mean many things, including in places very close to the city. Many people think that rural means farmland, though that’s not entirely true. While large cities and suburbs don’t qualify, the USDA considers some areas with a population of less than 35,000 to be rural. The USDA has three primary categories for property eligibility.

  1. No more than 10,000 residents
  2. Populations of 10,001 and 20,000 that aren’t in a major metropolitan statistical area
  3. Areas between 20,001 and 35,000 lost rural status in 1990, 2000, or 2010 census with a lack of mortgage credit.

Your lender will help you determine what areas in WNC qualify for USDA loans.

What Makes it Different from a VA or FHA Loan?

There are several government loans, so what makes the USDA loan different from VA or FHA loans? To learn more, we recommend you talk to the team at GoPrime Mortgage in West Asheville, but here is a quick comparison.

FHA loans and USDA loans have very different down payment requirements. FHA loans require buyers to make a down payment of 3.5% if they have a credit score of 580 or higher, but USDA loans don’t need any down payment at all.

In terms of the VA loan, the difference is ineligibility. Only eligible veterans or active duty military can qualify for VA loans. USDA loans are available to anyone who qualifies. However, USDA loans have an income limit, which VA loans do not.

What are the Income Requirements

There are four income calculations the USDA will make during the loan process to determine the income edibility of the borrower.

  1. Annual household income
  2. Adjusted annual household income
  3. USDA qualifying income
  4. Repayment income

The minimum USDA requirement is for applicants to have a stable and verifiable income expected to continue. To determine consistent employment, lenders will typically verify income by looking at two years of tax returns and recent pay stubs.

Household income is determined by the projected income of every adult member. Every adult occupant’s income will count toward the household limit, even if they’re not on the loan.

The adjusted annual income is determined by subtracting the acceptable deductions from your annual income. Your lender will help you through this process to ensure everything is consistent and correct.

The USDA sets limits regarding the maximum amount of adjusted annual income in the household. They want to ensure the intended recipients meet the program’s guidelines for low and moderate-income groups. The typical limits are $91,900 for households of one to four and $121,300 for five to eight.

The USDA does adjust for regional differences, which is why working with a local independent mortgage lender is essential. They have set the base income level at 115% of the area’s median household income.

It’s also important to know the difference between the USDA’s qualifying income and repayment income. Qualifying income is used to make sure borrowers meet the income requirements, but repayment income is about the ability to repay the loan.

Your lender will assess your application by calculating your debt-to-income ratio or DTI. The USDA sets the standard DTI at 41% for their loans. That means borrowers should spend more than 41% of their monthly income on debts. It is possible to get a USDA loan if your DTI is higher, but it may include more stringent lending requirements.

What Are the Credit Requirements

Potential homebuyers applying for a USDA loan need to demonstrate stable and dependable income and credit history that shows they are able and willing to repay the loan. There is no minimum credit requirement for USDA loans, but applicants with a credit score of 640 or more can be eligible for the automated underwriting system from the USDA.

If an applicant has a credit score of less than 640, they may still be eligible but will have to go through a manual underwriting process with more strict guidelines.

To determine your creditworthiness, lenders will review:

  • Credit score
  • Repayment patterns
  • Credit use
  • Credit history

It’s important to note that applicants without established credit can also be eligible, but the process will require credit verification from other sources such as rent, utility, and insurance payments. These policies can vary by lender.

How to Get Started

As with any home buying experience, we always recommend potential borrowers connect with a local independent mortgage lender. They can walk you through the process, determine if your income and credit qualify, and share resources for agents who can help you find homes in qualifying rural areas.

You can also visit the USDA website to complete their eligibility profile to determine if this might be an excellent path to homeownership for you.

Contact GoPrime Mortgage in West Asheville to learn more.  Do you want to understand the mortgage process better and get preapproved for your next home purchase? Call the team at GoPrime Mortgage today. GoPrime Mortgage in West Asheville is here to help. Call us today at 828-348-1907 – GoPrime Mortgage in West Asheville.

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Zachery Adam

Zachery Adam

Branch Manager, Loan Officer

"What we do is so far more important than lending and buying houses. We are in the business of facilitating dreams and honoring the start of a new home.” 

Teona Rodriguez

Teona Rodriguez

Marketing

"“I wake up every morning with incredible appreciation. I love what I do.” ” 

Jordynn Webb

Jordynn Webb

Loan Officer Assistant

"My eventual goal is to become a loan officer. I love working within the community and being a part of the GoPrime Mortgage team.” 

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