Mutual of Omaha Mortgage Guide to USDA Loans - Eligibility Requirements

09.15.2020 | Category: Homebuying

Sponsored by the U.S. Department of Agriculture, a USDA loan is a mortgage that offers benefits for those wishing to purchase a home in an eligible rural or suburban area. These loans have several unique qualifications, like household income limits and location requirements that set them apart from other products. But they can be a great option for individuals looking for $0 down mortgage options.

If you’re looking to purchase a home, and live in a qualifying area, the USDA requirements and benefits are worth discussing with your mortgage lender. Read more about how USDA loans work below.

USDA Loan Benefits

The USDA loan’s purpose is to provide affordable homeownership opportunities to low-to-moderate income households to stimulate economic growth in rural and suburban communities throughout the United States.

USDA mortgages offer borrowers low-interest and low-down payment loan options designed to encourage homeownership in smaller communities throughout the U.S. USDA home loans are issued through private lenders and are guaranteed by the United States Department of Agriculture (USDA).

USDA Location Requirements

In the interest of promoting homeownership within smaller communities, the USDA places restrictions on where a property can be located. USDA loans are available in rural and suburban areas that have fewer than 35,000 residents. The USDA’s definition of rural is pretty generous, and many suburban areas of the country qualify. In fact, 97% of the nation's land is considered to be USDA eligible.

To learn more about USDA property eligibility requirements, check out the USDA eligibility map or give your Mutual of Omaha Mortgage loan officer a call. 

USDA Loan Eligibility and Income Limits

In addition to living in a rural area, a USDA loan applicant must meet certain income requirements. USDA Loans are intended to provide quality homes to individuals with low-to-median incomes.

USDA loan income limits will largely depend on where you decide to live but cannot exceed 15% above the median salary for your area. For most areas of the country this works out to be $90,300 for one to four person households. Your mortgage loan officer at Mutual of Omaha Mortgage will be able to look up the specific income limit guidelines for your area and advise if you meet the USDA loan requirements.

In addition to the income requirements, there are several other other qualifying factors that you should keep in mind:

• You’ll need to be able to show your lender that you have a consistent and stable income source that will allow you to meet your monthly mortgage payments.
• Due to the coronavirus pandemic, credit score requirements have tightened across the mortgage industry. In general, you’ll need to have a credit score of at least 620.
• The property that you wish to purchase must be your primary residence. To qualify for a USDA loan, the property cannot be used as a second home or investment property.
• The debt-to-income requirements for a USDA loan are more stringent than other types of mortgages. Debt-to-income (or DTI) is one calculation that your mortgage lender will use to assess your ability to be able to repay your loan. The USDA standard DTI for a USDA loan is 41%, which means that a borrower cannot spend more than 41% of their monthly income on debts (your new mortgage payment will be factored into this calculation). The USDA does offer some flexibility with this requirement, and you could acquire a USDA loan with a DTI higher than 41%, but you should be prepared to meet additional lending requirements.

A USDA loan is a mortgage that offers considerable benefits for those wishing to purchase a home in an eligible rural area. Working with a loan officer early in the process can help you better understand your financing options.

USDA Loans vs. Conventional Loans

While the USDA loan is a federal program, the government generally does not make direct loans to applicants. Private lenders, like Mutual of Omaha Mortgage, finance the loan while the U.S. government offers an insurance guarantee. This guarantee provides an incentive for private lenders to offer loans with better terms, and protects them in the event of a customer default. See how a USDA loan compares to other mortgage loan types.

Mutual of Omaha Mortgage Can Help You Determine if You Meet USDA Loans’ Eligibility Requirements

Mutual of Omaha Mortgage loan officers are ready to sit down with you and review your finances and property goals. We’ll help you discern if you qualify for a USDA loan or if conventional mortgage alternatives are a better fit for your income and goals.

Connect with us by calling 1-800-24-RATES or clicking here.