Just because a USDA loan has less stringent qualifications doesn’t automatically mean everybody can qualify for the program. For starters, it is established for a specific segment of the borrower market, specifically low-to-moderate income families who have lower chances of obtaining conventional mortgages.
A USDA loan lender looks for a certain range of qualifications in your application to determine if you are eligible for the program. Here are the most common considerations that lenders use to evaluate a USDA loan application:
In order to protect their investment and make sure they get a return on their business, lenders need to secure your ability to repay the said loan.
This entails a careful scrutiny of your household income. Per USDA Guidelines, a household is eligible for a USDA loan if its annual earnings do not exceed the median household income for the area by more than 15 percent, depending on its size.
A 1-4 member household has a floor limit of $75,650 while a 5-8 member household has a limit of $99,850. If the household contains more than 8 members, they can add eight percent for each additional member to their 1-4 member household USDA income limit. These limits, however, still vary by state.
Another important consideration that lenders pay attention to is your job history. This tells them a lot about the kind of worker you are – whether you can hold the job long enough to cover the necessary payments for the mortgage.
Lenders look for discrepancies in your records or periods of unemployment. Even if you do have discrepancies in the past, however, as long as you’ve been holding well in your current job, you should have no reason to not qualify.
The ideal credit score that lenders accept for a USDA loan is 640. However, they can bend that rule and approve borrowers with lower scores if you can sufficiently demonstrate with records and evidence that you are improving in terms of finances.
Lenders pull your credit data from the credit reporting agencies Experian, Equifax, and TransUnion to look at your credit history and see if you do not have delinquencies in your credit payments. Missed payments or accounts in collections are red flags for lenders. Before you file an application, check your score for any inconsistencies and errors. Have them disputed or corrected if there are any.
It’s true, qualifying for a USDA loan seems easy at first glance, but in reality, only a few can jump through the hoops. Do you qualify? If so, call us now and get started with your financing process.