Some of the criteria that qualify you for a USDA mortgage loan in Michigan include — income, down payment, credit scores, and more. Getting a USDA loan is not much different than getting a conventional mortgage. Here are 10 factors that can impact your loan approval.
1. Community Bank Approval with USDA
USDA is a government agency that sponsors the program, but your community bank will handle 100 percent of the transaction. This means your community banker does everything from taking your application to issuing the final approval. USDA puts a final stamp of approval on the loan, and even that is handled by the lender. Sellers can contribute up to 6 percent of the sales price toward closing costs.
2. No Down Payment
The down payment requirement — or lack of one– is why so many buyers choose the USDA mortgage loan program. No down payment is required, making it one of the few 100 percent financing home loans available in today’s market.
3. Immediate Purchase Power
You have a down payment advantage that would take years for most families to save 5 percent down or more. During that time, home prices can go up, making saving a down payment even harder. With USDA mortgage loans, home buyers can purchase immediately and take advantage of increasing home values. The minimum credit score for USDA approval is 640. The borrower must have a reasonably good credit history with limited 30 day late payments in the last 12 months.
4. First-Time Homebuyers
USDA guaranteed mortgage loans aren’t right for every buyer. But, any first-time or repeat buyer looking for homes outside of major cities should check their eligibility for the program. The program is available for purchase transaction only, no investment properties or second homes. A buyer cannot own another home at time of purchase.
5. Geographic Constraints
Geographic areas for USDA mortgage loans are for homes that must be located within a USDA-eligible area. To be eligible, a home must be in a rural area. Generally, cities and towns with a population less than 20,000 qualify.
6. Appraisal and Property Requirments
An appraisal on the property to determine its worth is required. The appraisal report also verifies the home is livable, safe, and meets USDA’s minimum property requirements. Any safety or livability issues will need to be corrected before loan closing.
7. Land Limitations
USDA mortgage loans are not meant to finance farms or large acreage properties. Rather, they are geared toward the standard single-family home. You can also finance some condominiums and townhomes with the program.
8. Primary Residence Requirements
Homes being purchased must be your primary residence, meaning you plan to live there for the foreseeable future. Rental properties, investment properties, and second home purchases are not eligible for the USDA mortgage loan program.
9. Loan Size by Income
There are no stated mortgage limits for USDA mortgage loans. Rather, an applicant’s income determines the maximum loan size. The USDA income limits, then, ensure reasonable loan sizes for the program. Income of all household members 18 years of age and older cannot exceed USDA guidelines here.
10. Repayment Feasibility
You typically need a 24-month history of dependable employment to qualify, plus adequate income from said employment. However, schooling in a related field can replace some or all of that experience requirement. Your lender will determine repayment feasibility.
USDA’s mandate is to promote homeownership in non-urban areas. As such, it makes its loan affordable to a wider spectrum of home buyers by keeping rates and fees low.
Learn more about the advantages of a USDA mortgage loan and working with your local community bank. Talk to one of our mortgage loan experts at Chelsea State Bank. Contact our office by phone: 734-475-4210 or online.
