If buying a home with no money down sounds like a great plan, look no further than the USDA program. However, there’s a problem. There isn’t a list of USDA approved homes. You have to do the work yourself. The good news is, there are many more approved homes than you probably think. The USDA’s definition of rural and yours might be completely different.
Using the USDA Website to Find USDA Approved Homes
Just because there isn’t a quick list for you to peruse doesn’t mean the USDA doesn’t help. Head to their website and you’ll see what we’re talking about.
After you accept the ‘property eligibility disclaimer,’ you’ll be brought to a map of the United States. From there, you can enter a specific address of a home, if you have one. If not, you can zoom in on the map until you find the general area you would like to live. Then click on the ‘pin’ next to the search bar and enter it in the general area. The map will tell you if that’s a USDA approved area or not. This will give you an area to search while looking for a home.
**Note, any areas that come up shaded are ineligible for USDA financing. This can help you minimize the time it takes to find an approved area.
The Work Doesn’t Stop There
Once you find an eligible area, you must find an approved home. This is a little trickier. The USDA has strict guidelines regarding the homes they approve. It doesn’t have to be fancy; in fact, it shouldn’t be. The USDA program is for low to middle-income families that would otherwise be unable to purchase a home.
In other words, the home must be modest in size and style. It shouldn’t have any luxurious accommodations, including a pool. There must be direct road access to the home and the home must be able to be lived in right away. All utilities must be working and the local codes must be met. Like FHA loans, there cannot be any mold or termite damage either.
Eligibility for a USDA Loan
Before you even find a home, though, you should make sure you personally qualify for the USDA loan. This program works differently than others. In this case, the less you make the better. Of course, this is within reason, though. You have to meet the USDA’s debt ratio requirements, which are flexible at 29/41.
However, you can make too much money and not qualify for the loan. In order to be ‘eligible’ for the program, the USDA looks at your total household income. They look at the income from every adult living in your home. It doesn’t matter who is or isn’t on the loan. For example, if grandma and grandpa live with you and they work, the USDA counts their income. Your total household income must be less than the maximum allowed for your area.
The USDA does have specific allowances for certain people in your home though:
- If you have children under the age of 18 or over 18 who are full-time students, you can deduct $480 for each child
- If you have any disabled relatives living with you, deduct $480
- If you have any elderly relatives over the age of 62 living with you, deduct $400
Once you deduct your allowances, you have your total household income. If you are eligible for the program based on these numbers, you can then work on qualifying for the loan.
Qualifying for a USDA Loan
Now you have to qualify for the loan. This works just like any other loan. You provide your lender with your income and asset documents. The lender pulls your credit to determine your credit score and the amount of your liabilities. As of today, you need a minimum credit score of 640 to qualify.
Based on your income, assets, debt ratio, and credit score, the lender will determine if you qualify for the USDA loan.
If you qualify, which we recommend finding out before you shop for a home, you can then search for USDA approved homes.
Although the USDA doesn’t provide a list of USDA approved homes, you can find them rather easily. Finding out if you qualify for the program first can help save you some time. Once you are pre-approved, used the above methods, and find the home you can buy with no money down!