In North Carolina, we are lucky 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! So, what are the USDA Home Loan Requirements in North Carolina?
The USDA Home Loan Program is a zero down payment required home loan program for those looking for a home in a small town or rural setting. This is the “go to” mortgage program for folks who want to live outside Raleigh in Clayton or Holly Springs Neighborhoods. We also get lots of calls from folks who want to take advantage of the program in areas around Charlotte, like Belmont. However, all 100 counties in North Carolina have a portion of the County that qualifies.
The USDA Loan program can sometimes be used to purchase a Horse Farm, but in general, the program is not designed for a working farm. Income Producing Farms in North Carolina, and properties with lots of outbuildings will have a difficult time getting a USDA loan – and should probably consider looking at a Commercial Loan.
The USDA Loan program really only has 3 requirements. The Household income has to be below the maximum limit set for the County and must be enough to meet the debt to income guidelines, credit must be current with no late payments in the last 12 months, and the house must be located within the USDA Loan Eligibility Map “footprint.” The USDA Loan Eligibility Map NC is supposed to change . At that time, almost 25% of the neighborhoods that currently qualify for USDA Loans in North Carolina, will not be eligible for the program. (We created maps so you can preview the actual North Carolina USDA Loan Eligibility 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 buy a home with a USDA Loan 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.” So in some cases, we will need scores as high as 640, especially if your Debt Ratios are high – 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 outstanding 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 needed. We need at least three trade lines. We can no longer build credit, using your cell phone bill as proof that you make your payments on time. If you are a first time home buyer, and you don’t have much credit – or if most of the credit you do have is Student Loans, well then call us. You can sometimes get added to a family member’s credit card, or you can get started with 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 its classification and definitions for Rural Housing – and more than 22 Communities in NC that CURRENTLY qualify for USDA Home Loan Financing could lose that USDA Home Loan designation due to Census Numbers. In the official USDA Loan Eligibility site – you’ll see these changes listed as “Future” Property Eligibility Maps in the sidebar.
- 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%. We do NOT count insurance and cell phone payments in this calculation. Recently, we’ve seen “total debt ratios” as high as 46% get approved.
- We can ask for Debt Waivers if you are over the 29/41%. However, you will need some “offsetting” or Compensating Factors for us to work with… for instance, low payment shock or higher credit scores, or savings left over after closing.
- 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.
- 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!
- 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. Speaking of the Mortgage Tax Credit (MCC) program - it’s offered through NCHFA, and they require us to get a written Verification of Employment for every job you’ve had in the past 2 years – so please bring the contact information with you to your loan application.
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 (DO NOT!!) 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 “boundary maps” are scheduled to change pretty significantly in October of 2014. 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 Home Loan Requirements in North Carolina, please contact Steve and Eleanor Thorne, 919-649-5058, Connect with us on Google Plus or via Facebook to keep up to date on any changes to the USDA Home Loan program in NC!