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There is a lot of misinformation about what the USDA approval requirements are. Lenders must evaluate several factors when it comes to providing USDA Loans including income requirements, credit standards, and property location restrictions.
When it comes to USDA approval requirements, income is probably the most confusing factor. There is qualifying income and maximum household income. The qualifying income is the gross income a borrower(s) has dived by the total monthly debt including the new home payment. Typically most lenders want that ratio to be no higher than 43%. The maximum household income is determined by USDA so it can vary by area. The allowable amoung can vary depending on number of individuals in a home. Regardless of who is actually responsible for repayment of the loan, all income earners within the household will have their income considered in this calculation. If the buyers' income exceeds the allowable amount for their area, they will be disqualified from the USDA Loan.
USDA approval requirements for credit can vary depending on the lender, but USDA has its minimum standards of 620. Most lenders will do a USDA Loan with scores as low as 640. USDA requires borrowers to be 2 years removed from bankruptcy and 3 years from foreclosure. They do require 3 tradelines on a borrower's credit report with at least a 12-month history; however, if a borrower does not have this, they allow nontraditional tradelines. Nontraditional tradelines are debts being paid monthly such as utility bills and cell phone bills.
The last of the major USDA approval requirements is property location. USDA loans are only valid for eligible homes in designated areas. The "rural" areas are determined based on population from the most recent census. Most often these rural areas fall in towns with populations below 10,000. A common misconception is that a property must be located in a remote area or farming community, but eligible areas are often just outside larger cities or towns.
While there are many factors that go into USDA approval requirements, there are 3 major items: credit, income, and property location. The USDA Loans are one of the best loan products available but borrwers must meet these requirements before being approved for a loan.
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Some products and services may not be available in all states. Credit and collateral are subject to approval. Terms and conditions apply. This is not a commitment to lend. Programs, rates, terms and conditions are subject to change without notice.
