Easy Tips on Applying for a USDA Mortgage

The United States Department of Agriculture has made a program that aims to provide home loans to drive rural development. Buyers who are eligible for the loan program can receive 100 percent assistance without any down payment required. The home mortgage term is fixed and loan terms are common between 30 to 33 years but can be extended for up to 38 years.  Eligible borrowers can either get a new home or even renovate their existing home located in a rural area. What's even better about this loan is that it's available for both first timers and repeaters as well.

But how do you apply for a USDA home loan?

Tip No. 1: Choose the Best Loan Program for You. The USDA currently has two mortgage options available for eligible borrowers. The Guaranteed Housing Loan is made to borrowers who have an income that's at least below the 115 percent of the area's average income. Meanwhile, the USDA Direct Loan, also known as the Section 502 loan, is made to borrowers with very low to moderate income to help them purchase a house in an area that's within the USDA Rural Development Map.

Tip No. 2: Make Sure to Meet the Income Limits. The USDA has certain income limits set for each program. You have to make sure that your income is below 50 percent of the area's average income. Your income is considered low if it's between 50 to 80 percent of the area's median income.

Tip No.3: Keep Your Credit Score in Good Condition. Although the USDA offers some flexible credit score requirements, it would still require further review to see if you have any serious credit issues. One of the things that lenders would often check is bankruptcy or foreclosure within the past three years, any outstanding tax liens within the past twelve months, and any instances of accounts getting escalated to collections.

Tip No. 4: Keep your DTI in Check. You have to make sure that your debt to income ratio is within the qualifying percentage set by the USDA. Your housing costs should not go over 29 percent while your total debt should stay below 41 percent. However, there are some cases when lenders will allow an exception for a higher DTI ratio.

Tip No. 5: See if the Property is in an Eligible Area. Ask a lender in states like Texas to see if it's inside the USDA Rural Development Map.

Tips No.6: Contact a USDA Approved Lender. To start your USDA loan application process, you need to start coordinating with a USDA approved lender.

Tip No. 7: Start Your USDA application process. The USDA mortgage application is the same with any other conventional loan. You may want to work with a real estate agent who knows a lot about the process to make it much easier.