There are many things to understand when trying to obtain home financing and qualify for a USDA loan. I am going to explain the most important factors when considering the home you are buying, the finance company you want to use, as well as the criteria for obtaining pre-approval.
The first and most important thing to know is that there are strict income qualification factors. By visiting the USDA eligibility site, you can calculate your family size and how much money you make to see if you can 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 as well, such as disabled or dependent children, that you want to look at. Talking to a professional loan officer will help you understand the process a little better.
The second thing is to make sure the home you want is in a USDA rated 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 approved through USDA, your real estate agent should know which areas qualify and which do not, so make sure when choosing a real estate agent they know that you are financing a new home purchase with a USDA loan. Also, speaking with a professional loan officer will help you understand more clearly which areas qualify and which do not. Typically, cities with fewer than 25,000 residents will qualify. Rural areas also tend to qualify as well.
The third step is to contact a loan officer for approval. Typically, you will need at least a 620 credit score to obtain a USDA loan. Some lenders go as low as 600, but it is more difficult to get approved with lower scores and most professional loan officers will not, because there is a chance that you will not close. The USDA also has strict income qualification factors beyond gross income. Its debt-to-income ratio is stricter than any other program. Your maximum debt to income generally cannot be more than 41%. Therefore, all of your debts combined plus your new home 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 look for based on value and total payment with taxes and insurance.
Lastly, and getting involved in the approval process, don’t be afraid to search for a few lenders. Don’t talk to 20 loan officers or you will be confused and overwhelmed. Keep looking for 2-4 loan officers and do business with not only whoever you feel comfortable with, but also with the experience needed 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 home can qualify for the loan. So be sure to ask your real estate agent if the home you love qualifies for USDA!
I hope I have helped you understand the USDA process a little more clearly. If there is anything you can do to help, please don’t hesitate to reach out.
