USDA just announced that it will make new map change on June 4th. This means that if you are buying a home with a USDA Home Loan, you will need to have a commitment in hand from USDA by the deadline. The USDA Home Loan Map Changes this year are NOT the “Big One” that we know is coming in the next couple of years… I always hold my breath when I look at what the changes will be. At some point, likely in 2020, the new Census data will preclude MUCH of NC from being eligible for this program.
USDA Home Loan Requirements 2018
USDA Home Loans are no money down mortgage loans. To qualify, you need to meet the income caps that are set on each county. The income caps are based upon total household income, although there are a few things we can back out of income (like childcare).
Additionally, you need to have decent credit. USDA Home Loans are underwritten with an Automated Underwriting System named GUS. Gus is adjusted by USDA, and to get an AUTOMATIC approval, you generally need a credit score of at least 680 right now. There are some files that are getting approvals down to 640 credit scores, but these files generally do not have gifts for closing costs, and they have very low debt to income ratios.
If you get an automated approval, we can offer you the very best mortgage rates. If you don’t receive an Automated Approval – all is not lost, we can still do a Manual Underwrite USDA Home Loan.
We CAN do a Manual Underwriting of your USDA Loan if the Middle score of all applicants is at least 600. We need some strong Compensating Factors to ask for an approval on loans with middle credit scores between 609 and 640.
Manually Underwritten USDA Home Loans generally require a proven rental record, meaning if you’ve been living with your folks, and you’re just now moving out on your own – this might now be the right program for you.
Manually Underwritten USDA Home Loans have stricter Debt Ratio requirements. Take a minute and think about it – there’s no down payment and the credit score is not that strong so they are going to require a stronger borrower.
A college degree, or Job training that provides some potential for increased earnings MIGHT be considered a compensating factor. There’s a pretty long list of USDA Loan compensating factors that we use to help borrowers with lower credit scores, having cash left over after closing (for instance) is a pretty good way to “beef up” your file and get approved. Another factor we are seeing important for USDA Loan Manual Underwriting Approval is little to NO Payment Shock.
USDA Home Loan Underwriters count 1% of Student loans as a payment, unless we an prove that the payment is a level, equal payment pay back. A variable payment, one that is in deferment, anything that is not a level payment will be counted as 1%. If you have Student Loan debt, and need help with coming up with a down payment, you should probably look at the First Time Down Payment Loans available. The Mortgage Rates are slightly higher – but you are getting to buy a house!
USDA Home Loan Map Changes 2018
In addition to borrower qualifications, we also need for the home to be in the USDA Home Loan Footprint. USDA sets the guidelines of what they estimate a RURAL area to be. Look at this map, everything shaded GREEN qualifies for USDA Home Loans. Every county in NC has some area that qualifies for the Rural Development Housing Loan (also known as USDA).
In Raleigh (for instance) the USDA Home Loan Map changes mean surrounding suburbs will no longer qualify.
For a home to meet the USDA’s rural definition, it must be in an area that’s not part of or associated with an urban area.
Guidelines on definition of a qualified “rural area” include:
Has a population that doesn’t exceed 10,000, or
Has a population that doesn’t exceed 20,000; is not located in a metropolitan statistical area (MSA); and has a serious lack of mortgage credit for low to moderate-income families, or
Any area that was once classified as “rural” or a “rural area” and lost its designation *due to the 1990, 2000 or 2010 Census may still be eligible if the area’s population does not exceed 35,000; the area is rural in character; and the area has a serious lack of mortgage credit for low and moderate-income families.
That * is the clue of what is about to change… USDA Home Loan Underwriters are really using “old” Census data. We know that when the 2020 Census is done, about 1/3 of North Carolina will no longer qualify for the program. Holly Springs, Leland, Fuquay, Belmont – lot’s of areas in NC have changed since 1990. Because of that, each year, USDA is looking at minor changes on the maps, based upon the highest concentration of new construction. So, instead of seeing whole Towns loose designation in the next few years, we are seeing subdivisions lose the USDA Home Loan Eligibility right now. I guess you could say that they are easing us into the USDA Home Loan map changes in NC.
Houses that qualify for this program do NOT need to be farms. In fact if the property is thought to be income producing, we might not be able to make it work. So let’s not talk about boarding horses, we are growing hay for OUR horses.
USDA requires that the property be located within the USDA Footprint, and then it says that, “A non-farm tract to be purchased or improved with loan funds must not be closely associated with farm service buildings.” Well, what if you want to have a horse, or a couple of goats in the pasture outback? Does that count as “Farm Service Buildings?”
If a barn can be used for this purpose without significant repair, regardless of the applicant’s intended use for the structure, then it is considered a functional farm service structure for rural housing purposes. This type of farm service structure typically adds value to the subject property as evidenced by an appraisal report.
In a clarification, USDA stated that outbuildings that have some functionality, maybe you want a place for your riding lawn mower, do not have to be considered “farm service” IF the land the house is own is not income producing, and it’s typical for homes in that area to have structures like that.
They are also looking for Homes that meet the FHA property standards, so lead based paint, even if it’s on the workshop will need to be removed.
A few of these standards include:
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- Access to the property: The property should be easily accessible from a paved or all-weather road surface. (READ: Dirt Roads don’t work for USDA Home Loans). To qualify for a USDA Loan, the roads leading to the property must be deeded in such a way that the home owner can access the property without trespassing on any another person’s land. That is to say that if there’s a private road that runs across another person’s property – you must gain permanent access to your property.
- Structurally sound: The foundation and home must be structurally sound for the life of the mortgage.
- Adequate roof: The roof must prevent the entrance of moisture and provide sufficient minimum economic life.
- Functional heating and cooling: Heating and cooling systems will be assessed, regardless of design, fuel or heat source. Central air is not required, but if installed, it must be operational.
- Operational electric system: The electrical system of the home must be adequate and up to date, with no frayed or exposed wiring. The electrical system must also be able to support typical functions and appliances for the size of the home.
- Suitable plumbing and water flow: The home must have working plumbing and enough water pressure for waste removal. Septic System requirements are pretty standard across the state.
I know this is a long post – but the gist of it is this: USDA Home Loans are great. They have no down payment requirements, they have very low PMI rates, and they have the lowest Mortgage Rates because they are backed by the Government. If you qualify for one, Congratulations. In the next couple of years, fewer and fewer parts of NC are going to qualify. The announcement that USDA Home Loan Map Changes are shrinking on June 4, 2018 is not surprising – expect more change in about six months (October).
If you have questions about USDA Home Loan Map Changes, please call Steve an Eleanor Thorne 919 649 5058. We love this program and we work with people every day buying a house in NC. We want to be your USDA Home Loan resource!
I try and answer all questions :)