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The USDA has two sides to their eligibility requirements − property eligibility and the borrowers financial and credit eligibility. This section discusses financial eligibility, while the USDA’s property guidelines can be found here.
As with most any mortgage loan, you must demonstrate your ability and willingness to repay the loan in monthly installments. Your credit history will be analyzed to determine whether you have a reasonable ability to meet repayment obligations as they become due. Additionally, you must show that you have steady and sufficient income that is enough to meet mortgage payments, as well as reserves each month.
The USDA home loan guarantee program is designed to help low to moderate income families. To ensure this, the USDA enacts income restrictions depending on the area you wish to purchase a home.
To determine your income eligibility, your loan underwriter will look at your gross income, income from any co-applicants, as well as any other adults who plan to live in the household. If your income exceeds the maximum mark, you may still make certain adjustments to your gross income that will help you qualify.
Are you steadily employed with the same employer for many years? Having a steady job and income helps with the underwriting process. But what if you have worked many jobs over the last few years? Or you are self-employed?
In order to give a loan underwriter a clear picture of your income, you will need to submit copies of at least two years of IRS tax filings. If you are self-employed, three years of tax returns may be necessary to determine a good average income. If you currently work for an employer, you should provide copies of the last two months of pay stubs.
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The USDA does not require a minimum employment history from a certain position to obtain a USDA Loan; however, there is the requirement that a borrower should have a history of receiving stable income for two years. This means you should be able to show a lender two years of steady income through employment or by child support or contract income.
Acceptable forms of income include a base salary wage, overtime, commission, tips, contract work, bonuses, housing allowances and compensation from other adults living in the residence. If you are self-employed, you must be able to furnish two years of tax forms, showing stable employment in the same line of work.
Gaps in employment history exceeding 30 days must be addressed by an explanation letter, unless the income history is seasonal in nature. If you have less than two years of steady employment, you may still be eligible if you are new to the workforce, have recently returned to the workforce after an extended absence or have a strong likelihood of continuing in your current position.
When you are ready to make a home purchase using a USDA home loan guarantee program, you must find an approved lender who is familiar with the USDA home loan underwriting guidelines. When you set up an application, your credit history will be ordered by the lender.
Your credit history shows your past debt obligations to other creditors and whether you paid on time or late, or if you managed your credit within limits or extended your limitations. Any derogatory late payments, such as 30 days or more, will show on this credit history. Also, any bankruptcy, repossession, or foreclosure will also be revealed on the credit report.
If you know you have made all past credit payments on time and have a good credit history, you are in good standing, and your home loan underwriter will enjoy looking at a clean report. But even if you have some "spotty" or derogatory credit issues listed above, you still may be eligible for a loan. The good news with a USDA mortgage guarantee home loan is that there is no minimum credit score.
A mortgage loan underwriter wants to know that you are willing to repay the loan. If you credit history shows late payments or even previous bankruptcy, you can still repair your credit report with a good deal of effort.
Late payments must usually be at least a year in the past, and your current history must show that you have met your credit obligations on time and diligently for at least 12 months. If you have filed for previous bankruptcy, the declaration usually must be at least two years old. Since the bankruptcy, you must show that you have been diligent with credit and debt payments.
Your dream of owning a home can become a reality. Your diligent work at correcting credit issues and stead income verification will be a big help in obtaining a rural home loan guaranteed by the USDA.
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