In North Carolina, we are lucky that that are so many places to live where you can have a white picket fence, or an outbuilding… not everybody wants to live in a cookie cutter neighborhood! The good news is that for most of those “less urban / more rural” parts of NC, you can buy a house with no money down, using the USDA Home Loan Program!
The USDA Home Loan Program is a zero downpayment required program for those looking for a home in a small town or rural setting. It does NOT need to be a farm – in fact if it’s an income producing farm, I’ll probably have to refer you to someone who knows a lot more about Commercial loans than I do… no a USDA loan is for folks who are buying a rural home and who have fairly decent credit.
The program really only has 3 requirements. The Household income has to be below the maximum limit set for the County, the credit needs to be decent while the income supports the payment, and the house must be located within the USDA Eligibility “footprint.” The NC USDA Maps are suppose to change in September of 2013 – Preview the actual North Carolina USDA Map Changes
Basic Qualifying Information for USDA Loans:
- Credit Scores need to be at or above 620. There are some exceptions – so if you are slightly under this let us take a peak at your credit and we’ll let you know if you can close now – or if you need to do some work and close in six or eight months! Remember that when you are reading about “needing a score,” what that really means is that you must have 2 of your 3 scores over that “minimum number.” This is a change, the “old” number was 580. The NC Affordable Housing Agency Program changed in May of 2013. So in some cases, we will need scores as high as 640 in the spring of 2013 – which is not as hard as you might think. Here are some Credit score tips we’ve seen really work in the last 12 months.
- You can not have Judgments or Liens against you. This is not a USDA Home Loan requirement, it’s for any mortgage program. This requirement is non-negotiable, because you can not get Title Insurance if you have a Judgement or Lien against you. Remember, you can not dispute a Judgement or Lien. A Judge had to see the documentation for that to be on your report, so you have the option of Settling it – or leaving it on the report until it ages off. Unpaid Taxes (a tax lien) will stay on your credit report for 15 years.
- USDA Loans require a minimum waiting period of 36 months since a bankruptcy, short sale or foreclosure. Take that time to re-establish your credit and get your scores up. Not using credit is not going to help you get the scores you need to purchase a home after you’ve had a credit disaster.
- Traditional Credit Scores are often needed. Like FHA we can “build” credit… but if your total payments are higher than an underwriter wants them, or if your income is difficult to “document” or if you have been paying $300 a month rent and now your house payment is going to be $800… the underwriter is probably going to want to see some additional credit history. If you do not have a credit score – call us and we will show you how to get this started. (Usually it means you need to get a couple of secured credit cards).
- USDA Counts Student loans that are in Deferment. Other mortgage programs don’t. If you are not making payments on a half dozen student loans, and you want to use this program, we suggest you start working on a payment plan that includes those deferred loans.
- You must not be over the Maximum Income Household Requirements for your area. In most parts of North Carolina, USDA Home Loan Requirements are broken down between how many people are in the household. So, in Wake County, 1 to 4 people in the Household means that the total Household Gross Income can be no more than $91,850. For a household with 5 member or more, the income limit is $121,250. This changes per county, so check and see what the limits are for your County. Also remember that we can make adjustments to the household gross income by following USDA guidelines. The Income adjustments for USDA can be made based specific allowable deductions on tax returns for the past two years, child care expenses, retirement income, disability and several other factors. If you are just a little over the maximum numbers, call us – we might be able to help you figure it out. 919 649 5058
- The House must be within the USDA Home Loan “Footprint.” USDA is changing it’s classification and definitions for Rural Housing – and on October 1, 2013 more than 22 Communities in NC that CURRENTLY qualify for USDA Home Loan Financing could loose that USDA Home Loan designation due to Census Numbers.
It’s a 100% Loan, and you can get a gift, or the seller can contribute to the closing costs. There are no reserve monies needed after closing – so it can truly be a no money out of pocket loan!- Qualifying is based upon your gross taxable income. This means that if you earn $48,000 a year, before taxes are taken out, we are qualifying you on $4000 a month. We look at two things to see if you qualify. We want to see what percent of our total gross income is going to your house payment. So again, if we are using $4000 a month – we want to see no more than $1160 going towards the principal, interest, taxes and insurance on the loan (or 29%). The other thing we consider is what percent of your paycheck is getting spent on ALL of your bills (including the house payment). This should be no more than 41%.
- Childcare is considered in qualifying for a USDA loan. But it is kinda’ complicated… it affects the income used for qualifying and it might mean that if you are over the income limits in your area, but you are paying child care expense – you could still qualify!
- These loans are fully documented… bring every document you think we might need to loan application! Because some folks have tried to get these loans without disclosing the spouses income (for instance – trying to “cheat the system”) we normally ask for 2 years of tax returns. And even if WE don’t ask for 2 years tax returns, the USDA underwriters require that we get a 4506T, which is a transcript of what you reported to the IRS. Any write offs, additional income sources, etc. will show up.
- We can combine the NC Affordable Housing Program with a USDA loans in NC. If you have been renting a home for three years, you might qualify for this additional program that offers up to a 3% grant to help cover closing cost. It can also offer you an ADDITIONAL Tax credit that helps you qualify for a little bigger home.
- Give us everything we ask for as soon as possible on a USDA Loan in NC. The requests we might make for documentation can seem silly, however responding quickly is one of the things you can do to get your USDA loan underwritten faster! If you are applying for a USDA Loan with an MCC credit… your loan is actually underwritten 4 times. Every underwriter could ask for additional documents. It does NOT mean that your loan is getting turned down, it just means we have to give them what they ask for. In the past 7 years, we have not had a loan go to the USDA Underwriter that then got turned down. Having said that, remember that we are going to pull another credit report right before you close! So don’t quit your job, don’t buy a new car, don’t transfer large sums of money to payoff a credit card (unless we tell you to), and don’t don’t don’t get a new credit card to buy appliances for your house until we tell you the coast is clear!
Every county in NC has a portion that currently qualifies for USDA Home Loans, but those “boundry maps” are scheduled to change pretty significantly in October of 2013. We have several maps that show the Eligibility Changes for USDA Maps across the state showing the changes and what areas will continue to qualify for USDA Home loan financing.
For more information about USDA Mortgages, please contact Steve and Eleanor Thorne, USDA Home Loan Experts 919-649-5058, Connect with us on Facebook to keep up to date on any changes to the USDA Home Loan program in NC!
About Eleanor Thorne
Hi, thanks for the great information you provide on the blog.
You wrote that “Qualifying is based upon your gross taxable income.” Is this also true for self-employed borrowers (S Corp)? Or are self-employed borrowers qualified based off their NET income?
For FHA loans, what is the maximum back-end ratio that’s allowed? I’m asking because I have a good deal of student loan debt (that I am trying to pay-off to reduce my DTI). Some websites say 43% max back-end ratio via FHA, while other websites say you can go higher – as long as the automated underwriting engines approve it. What’s the highest DTI back-end ratio you’ve seen approved? Any suggestions for what to shoot for?
If you are an S Corp, your income will be based upon the Net income plus depreciation and one time expenses – The DTI will be determined by the AUS. I’ve seen them approve a 44% – but there were “off setting” factors (large amount of cash in the bank with very good credit scores). You might also want to see if you can get your loans consolidated, or refinance them to get better terms? If you are in NC, call us, and we will be glad to run your scenario thru GUS.
How does USDA loans deal with past short sells? Is there a waiting period required?
They require a 640 middle score, and depending on how the Short Sale is reported on your credit report – they will treat it like a foreclosure and require a three year waiting period.
This is a GREAT website. Just sent it to some USDA buyers. It is not only very pleasing to the eye but packed with all the right info!
Hi. Thanks for this information. We are looking at a rural property that qualifies for USDA and we would like to purchase it along with my daughter and her husband and family. Could we qualify for USDA as non-occupying co-borrowers?
Unfortunately, USDA does not offer non-occupying co-borrower loans. You can do this with a FHA loan, with 3.5% down. If you have specific questions, please call us and we’ll be glad to help! 919 649 5058
Hello: can retirees use Social Security and pension as the only income and still qualify for a USDA loan?
Thank you for this wonderfully informative site.
Amy – yes, we can qualify someone on Social Security and Pension income for a USDA Home loan in NC
Please call us at 919 649 5058
Hi Eleanor, all of my criteria seems to meet the guidelines for being approved for a USDA loan, however, I was a student approx. 6 months ago (starting working the week after graduation) and I have a STRONG, SOLID, work history prior to that in the same field. Can you give me some insight please?
My question is regarding bank statements. How months does uw require on a guarantee usda loan? What about nsf fee’s?
John- Great Question. We need to see 2 months of Bank Statements. So let’s say the April Statement shows an Ending Balance of $1200 and the OPENING Balance was $500. We are going to look at where the deposits came from. If the May Statement has an opening balance of $1200 and the ending balance of $1800, again – it will be the deposits that are focused on. If those 2 statements show 1 or 2 NSFs, it will not likely be a problem… unless you are also close on the Credit Score minimums. If you have specific questions, I encourage you to call us at 919 649 5058
Shannon, so I want to make sure I’m hearing you correctly. You were working, went back to school in the same field, and now you are working again? That probably works. The question will be about the Student Loans. USDA treats Student loans completely different from FHA or VA. We need 1 full months paycheck before someone with a new job can close on a mortgage. You can call us at 919 649 5058 and we’ll be glad to pre-qualify you. It takes about 15 minutes.