USDA RURAL LOANS

How do USDA Rural Loans Work?

If you have never heard of a USDA Rural Loan, you are not alone. This is a very specific product with great benefits that not very many people know about. In this article we will tell you exactly how USDA Rural Loans work and how you qualify for a USDA Rural Loan.

USDA Rural Loans are offered in particular counties, in only a small part of the U.S. To verify whether or not a property is eligible for a USDA Rural Loan, you can go to this website and find out. Outside of the property’s location, you don’t have to worry about being a first time homebuyer in order to enjoy the benefits of this no money down loan.

The main benefit of a USDA loan is that it is a 100% no money down loan, and frequently comes with a lower interest rate than other home loan types. Typically banks do not offer this type of mortgage so you’ll have to find a local lender who specializes in USDA loans. Finding a specialist is important because of the extensive requirements for eligibility and the paperwork for rural property, homes and land.

Unlike CHFA loans, USDA Rural Loans do not require the purchaser to attend any sort of homebuyer counseling. However, similarly to FHA loan programs USDA Loans do require mortgage insurance.

The USDA loan guidelines are straight-forward. You must qualify for the program and your home must, too. Below are some common USDA mortgage questions.

 

  • With the USDA Rural Housing Program, your home must be located in a rural area. However, the USDA’s definition of “rural” is quite liberal. Many small towns meet the “rural” requirements of the agency, as do suburbs and exurbs of most major U.S. cities.

  • The USDA has no downpayment requirement. You can finance 100% with a USDA loan.

  • There is no maximum loan size for the USDA loan program. The amount you can borrow is limited by your household’s debt-to-income. The USDA typically limits debt-to-income ratios to 41%, except when the borrower has a credit score over 660, stable employment, or can show a demonstrated ability to save.

  • No, the USDA Rural Housing Program can be used by first-time buyers and repeat buyers.

  • Yes, the USDA will let you finance your Upfront Mortgage Insurance payment into your loan size. For example, if you bought a home for $100,000 and borrowed the full $100,000 from your lender, your Upfront Mortgage Insurance would be $2,000. You could then raise your loan size to $102,000.

  • Currently, the Rural Housing loan is available as a 30-year fixed rate mortgage only. Beginning in September 2014, though, a 15-year fixed rate mortgage will be available. There are no adjustable-rate mortgages.

  • There is no minimum score, per se, but 640 is generally regarded as a cutoff point. If your FICO is below 640, you should be prepared to explain why your credit score is below 640, and provide documentation. If you are without a credit score, your lender may accept “alternate” trade lines to establish credit history.

 

10 Things to Know About USDA Rural Loans

A VA loan is a mortgage loan program guaranteed by the U.S. Department of Veterans Affairs, issued only by qualified lenders. Available to eligible American veterans and surviving spouses, the VA loan was designed to offer attractive financing options to the brave men and women who have served in the United States Armed Forces. If you, or a loved one, are exploring the options made available through VA loans and VA jumbo loans, we encourage you to do your homework. Take each of the following into account to ensure you are making a sound decision for your financial future.

1. Special Rules Apply Specifically to VA Loans

Because the VA loan program is designed to offer special mortgage financing options to a specific group of individuals, it falls under a specific set of rules and guidelines. The lender must evaluate a specific set of variables when determining if an applicant is eligible for a VA loan or a VA jumbo loan. Affordability is established based upon a predetermined debt to income ratio. In addition, credit scores are closely scrutinized. Finally, the lender determines a maximum VA loan qualification amount.

2. Conventional VA Loans Often Require No Money Down

When the amount borrowed for a VA loan is at or below the VA maximum limit in the governing county, the borrower typically does not have to put down any money up front. This provides a great opportunity for veterans to begin living the American dream of homeownership.

3. VA Loan vs VA Jumbo Loan

The differentiating factor between a VA loan and a VA jumbo loan is the size of the loan amount. Any VA loan that exceeds $417,000 is considered a VA Jumbo Loan. In some counties however the VA maximum limit can exceed $417,000. When a VA loan exceeds the predetermined maximum amount in the county, the borrower must put down 25% of the exceeded amount.

4. VA Loan Limits Are Set By the Lender

Contrary to popular belief, the maximum VA loan amount is set by the lender rather than the Department of Veteran’s Affairs. The VA’s involvement lies solely with the guarantee of 25% of the loan, or 4 times the available entitlement amount.

5. Calculating the VA Jumbo Loan

To calculate a VA home loan benefit for a “jumbo” property, there is a bit more calculation involved. The VA will guarantee up to 25 percent of the initial $417,000 of a VA loan. As stated above, once the amount of a VA loan reaches VA jumbo loan status, the borrower must put down 25% of the exceeded amount. An example would be a $600,000 home, the veteran must put down 25% of $183,000, or $45,750. This would be a 7.6% of the total cost of the home, significantly less than the average 10% required for a conventional jumbo loan.

6. Not All VA Jumbo Lenders are Created Equal

It is extremely important to shop around when selecting a VA loan lender. Certain lenders will offer VA jumbo loans at more competitive rates than others. Take the time to compare rates and select a lender with whom you feel comfortable working.

7. VA Jumbo Loans are the Most Competitive Option for High Income Vets

If you are shopping for a higher priced home, a VA jumbo loan offers an unrivaled option for veterans. Those who are shopping for homes priced above $417,000, and hope to put little down, can benefit greatly from the VA jumbo loan program.

8. VA Loan Eligibility is Typically Dependent on Length of Military Service

While there are exceptions, veterans who have served active duty, during wartime, for at least 90 days are typically eligible for a VA loan. Those who have served more than 180 continuous days, during peacetime, are also generally eligible.

9. The Minimum Credit Score for VA Jumbo Loans Above $650,000 is 640

If you are interested in a VA jumbo loan, it is important to consider your credit score. Only those with a credit score of 640 and higher are eligible to apply for VA jumbo loans in excess of $650,000. Speak with your lender about your credit score and keep in mind that it can negatively impact your score to have it pulled multiple times in short succession.

10. With VA Jumbo Loans Veterans Maintain all Benefits of a VA Loan

Though there are more rules and regulations associated with a VA jumbo loan, veterans enjoy the same benefits with one of these larger loans as they do with conventional VA loans.

 
 

Credit Eligibility & USDA Loans

USDA Rural Loans or a USDA Loan is a great loan program funded by the government to help infill some rural areas in each state. While the properties that are considered USDA eligible will vary, and there is no exact formula to determine a property’s eligibility–what does remain is the less stringent qualification guidelines for those looking for a USDA loan.

At Banner Mortgage, if you are a borrower applying for the USDA Loan program, a mid-score of 640 is accepted by our underwriters and will not require an exception. Each lender and their underwriters determine what they find acceptable so if you are not working with Banner Mortgage, the mid-score rule of 640 may not carry over with your lender.

Do you have more questions about your credit score, improving it, and disputing anything you see on it? A great resource can be found here. This will give you answers to questions such as:

  • How to contact the credit bureaus

  • How to freeze and unfreeze your credit

  • Information on a secured credit card

  • Additional links for other consumer resources

Overall, your credit score is a qualifying factor in any home loan program but its value is not required to be as high with the USDA loan program. At Banner Mortgage, we take the time to do a complete credit analysis with each borrower. If we find simple fixes such as paying down debt, or even the need for an additional revolving credit account we will advise you of such–then run a rapid rescore. Often times, there are simple changes a borrower can make too quickly improve their credit score without having to go through the hassle of contacting the credit bureaus.

 

    • On time payments

    • Late payments and late those late payments are

    • How many revolving credit accounts are open

    • The proportion of balances to credit limits on revolving accounts

    • If your history includes any: collections, bankruptcies, judgements and/or liens


    Your credit score is a “snapshot” at a specific moment in time. Your scores can change with new actions and with the passage of time. For example, the farther in the past derogatory information occurs, the less impact it has on the credit score.

  • If your mid-credit score is below 640 don’t panic! In most cases, we are able to help our borrowers raise their credit scores following our counseling. This is not guaranteed for anyone, and you must work with an experienced Credit Counselor in order to ensure you will be able to rapidly improve your credit score for loan qualification purposes.

  • There are some basic steps that anyone can take to improve their credit quickly:

    • Make your monthly payments on time.

    • Keep balances on revolving accounts low.

    • Don’t apply for new credit unless it is absolutely necessary.

    In addition to these steps, we work with a company who specializes in credit counseling. Working with a company like this makes it much easier to remove inaccurate or incorrect information from your credit report that is negatively impacting your score. We work to quickly improve your credit using a program from Advantage Credit called Rescore Express. Companies like this are not able to serve the public directly and all work must be done through your Mortgage Loan Officer.

  • According to the Advantage Credit website, ReScore Express is:

    Rescore Express is Advantage Credit of Colorado’s rapid rescore program. It will correct incorrect information at the bureau level. With the proper documentation, the correct information will be sent to the bureaus. The bureaus will verify the document and update the account. The update will take about 3 business days after being submitted to the bureaus. (vs. the 2-3 months it usually takes) if the borrower disputes the information themselves.