We put together a series of Videos to help with the home buying education process. The first series of Tutorials features USDA Home Loans. For many first time home buyers, the biggest draw back to purchasing a home is coming up with thousands and thousands of dollars in cash to cover the down payment and the closing costs. The USDA Home Loan NC program doesn’t require a Down Payment!
We asked our Intern, a Senior at NCSU to watch these videos, and he immediately looked up after about 45 seconds and said:
“USDA loans are made for those of us who cannot afford to drop $9,000 dollars on a loan out of pocket, SIGN ME UP! “
It really is a great program, and yes it is “backed” by the same USDA Department that grades your meat, and protects farmers. With THIS USDA Program – the government is not MAKING the mortgage loan. The program we offer is the Guaranteed USDA Home Loan, however there is a Direct USDA Loan.
Also known as the Section 502 Direct Loan Program, this program assists low- and very-low-income applicants obtain decent, safe and sanitary housing in eligible rural areas by providing payment assistance to increase an applicant’s repayment ability. Payment assistance is a type of subsidy that reduces the mortgage payment for a short time. The amount of assistance is determined by the adjusted family income.
To qualify for the DIRECT USDA Home Loan Program you must be unable to obtain a loan from other resources on terms and conditions that can reasonably be expected to meet. Meaning if you can qualify for the Guaranteed USDA Home Loan NC program we offer, you will not qualify for the USDA Direct Loan Program.
Because The USDA is backing this loan, and providing insurance to the lender in case someone defaults, they are also the Agency that sets the underwriting criteria and guidelines for approval.
USDA Home Loan NC Tutorial
Qualifying requirement of the program is that there are income limits that vary NC County. The program is designed to spur growth in more rural areas of NC, and to promote housing within Moderate to Middle income families.
The income calculations are based upon the “household” income, meaning if there’s a person over the age of 18 living in the home, we have to add their income to the borrowers, to see if the family “unit” makes more than the limit for the County… because, bottom line, “USDA Home Loan NC Underwriters will reject the borrowers if your income is too high.”
The Intern that watched the video series for us noted that “total household income Includes EVERYONE in the house… including the daughter with a part time job, and your grandma who is on social security.” He’s right.
There are adjustments that can be made to a borrower’s income to help meet the limitations. Those adjustments include deductions (that we can document) for childcare.
In North Carolina we have portions of our State that are under a “designated” USDA Home Loan MSA… this means that if you live near a Metropolitan Area (like Raleigh) you might not see your County listed for Maximum Income Limits in the Table – you would look at Raleigh.
The Raleigh Area includes Wake County, Johnston County and Franklin County. If you are looking for a USDA Loan in Mecklenburg County, Cabarrus County, York SC, Union County or Gaston County – you will have a limit for a family of 1 to 4 members of $78,800 and $104,000 for those with more than 5 people in the home. The “second” area listed in the USDA Loan Eligibility site is simply for Anson County, therefore, we’ve shown that separately.
USDA HOME LOAN NC or FHA MORTGAGE LOAN
Many borrowers come to us trying to figure out which program is better for them… the USDA Home Loan, a Conventional Loan, or maybe FHA???
A Conventional Mortgage typically requires a 5% down payment (although some folks can buy a house with only a 3% Investment), and they require a “better” credit score. In general Conventional loans are for folks who have better than a 680 credit score.
Because USDA Home Loans do not require a down payment, they are perfect for the borrower who doesn’t have 20% to put down on a house! The USDA PMI rates are also very reasonable.
USDA Home Loan Debt Ratio Waivers will be considered when the borrower has a middle credit score of 660 or higher, and the co-borrower has a credit score of at least 620. In those cases, the Bank may request a Debt Ratio Waiver for loans with ratios exceeding program guidelines of 29/41. To be eligible for a waiver we need to prove that the borrower will not experience any payment shock, and that they have other compensating factors, as well.
USDA Home Loan NC Applicants with credit scores of 680 and higher do not require additional compensating factors to be identified for debt ratio waiver requests – as long as their housing ratios are below 32% and their TOTAL debt ratio is below 45%.
FHA Mortgages require a 3.5% down payment. The down payment can come from a gift, or a mortgage grant. In general, if you have “lower” credit scores, FHA is going to be the best program because they allow for scores under 640. They also are more lenient on over all Debt to income ratios.
“USDA Home Loans NC require you to not make too little that you’re a risk, and not make too much that you are not in need of the program. The sweet spot is set for those who are not financially comfortable enough to be able to make the down payment required for FHA and conventional loans.”
These days (read in 2015) borrowers with credit scores UNDER 640 can probably get a mortgage to buy a house… but it is a painful process. Be diligent, do EXACTLY what your loan officer tells you… because your mortgage file will be scrutinized the most.
USDA Home Loan NC Eligibility
In addition to Income and Property Requirements, USDA Home Loans come with a few other “quirks. For instance they don’t really make loans on Farms, and they will deduct value in some cases for Out Buildings…
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.
“As long as you don’t plan to farm, or raise livestock commercially; you could qualify for a USDA loan even with a farm-house.”
Another area where USDA Loan NC Eligibility is a little unusual is the way that they underwrite Student Loan debt – we see tons of people with deferred Student Loans, or IBR adjustable student loan payments.
Student Loans that have MORE than 24 months before payments become due will be considered in deferment and will NOT be counted against you. (It’s a new guideline, so this could change)
- IBR Student Loan Payments are not fixed, and therefore do not meet the Exception above. Previously, we could count $100, that does not appear to be in the new guidelines for IBR Student Loan Payments. “IBR Student Loan plans, graduated plans, adjustable rates, interest only and deferred plans are examples of repayment plans that are subject to change and do not qualify for the exception. They will require a calculation of one percent of the loan as these plan types do not represent a fixed payment. No additional documentation is required if a credit report is obtained and the lender can confirm the payment represented is a fixed payment.” Meaning, you are allowed to refinance them to a fixed loan to qualify for a USDA Home Loan.
If you read through this, and you might not qualify for a USDA Home Loan in NC – do not worry! We are one of a handful of lenders in NC that also offer all of the NC Affordable Housing loans, which also provide Mortgage Tax Credits and Down Payment Assistance! Best of all? You don’t have to be a first time home buyer to qualify for these great programs!
For more information about USDA Home Loan Requirements in North Carolina, or to understand how these guideline updates are going to affect your ability to qualify – 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!