What is a USDA Loan? Can I Qualify For One?

USDA Loans are pretty much THE go to mortgage loans for first time home buyers, and those who don’t have a TON of cash they want to part with to buy a house.  Why is that?  Because they do not require ANY MONEY for a down payment on a home.  They are fairly easy to qualify for, and they are intended for folks who want to live in a less urban, more rural portion of North Carolina.  They are not, however, really the loan you will need to buy a real working farm. In fact, a home with this sized back yard – would be considered commercial property, and wouldn’t qualify for a USDA loan… but you could live next door!

USDA Loans are provided in two very different ways.  You can apply directly through USDA (ironically, this is referred to as a USDA Direct Loan) or you can apply through a Bank, and that program is called the USDA Loan Guaranteed Program.  If you apply Directly through USDA, you are going to go through extreme delays, we understand it currently takes over 60 days to get an appointment to meet with them, and there are significantly lower income limits.  If you apply through the Guaranteed  Program, your loan will still be sent to USDA for formal underwriting.

USDA Guaranteed loans are not actually made by the U.S. Department of Agriculture – the Department is acting just like FHA, and insuring the Bank against loss due to Foreclosure.  Because of that, USDA sets the underwriting guidelines by which they will ensure the loan.  Being backed by the Government means they have some of the lowest mortgage rates available.

A USDA Loan also has some of the cheapest PMI rates you will find (especially when you compare them to FHA rates!).  The upfront PMI Fee is usually added into the loan, and is 2%, and the annual fee is .5%.  To calculate your USDA PMI payment let’s use this scenario (cause it’s easy for me to do) Sales Price is $100,000.  You will then have a loan amount of $102,000. (So no down payment – add the 2% to the sales price, that’s gonna be your initial loan amount).  Multiply 102,000 by .5% you get $510.  Divide $510 by 12 months, you will pay $42.5 a month for the USDA PMI payment.  Full disclosure here – this is probably the only page on the Internet where you will read about USDA PMI… because that is not the “correct” term for it.  It’s called a “Guarantee Fee” – but it’s the same as PMI, so that’s just what I call it.

What is a USDA Loan? Can I Qualify For One?

USDA Home Loans in NC are pretty easy to qualify for – you need decent credit, the home needs to be located in the USDA “eligible” area, you need to be below the income requirements for the county you want to buy in, and you can’t currently have a USDA Home Loan in the general area you are buying in(although there are some exceptions to this).  These are 30 year, fixed rate mortgages for owner occupied properties.  We do not lend money for manufactured housing with USDA Home Loans – those must be brand spanking new units on land that you own.

Maximum Income:  The Maximum Household Income is based upon how many people you have in your home.  This is important to remember – because let’s say you have a grandmother who draws social security living with you. Even if she’s not going to be on the USDA Loan – her Income will be used to see if you meet the “test” of being under the income limit for the county.

Income Limits:  The Maximum USDA Household income limits for each county in NC vary. They also change every year.  For the income to be included in qualifying for the mortgage, it must have a likelihood of continuing for at least three years past closing.  This means that if you are receiving a stipend, that will end in 24 months – we will not be able to use that income to qualify you… but it will still be included to see if you meet the Maximum Income limits for the household.  Here are the current USDA Maximum income limits for some of the larger areas in NC

• Raleigh 5+ in the Household:         The maximum Household limit is $127,950
• Durham 5+ in the Household:        The maximum Household limit is $122,350
• Greensboro 5+ in the Household:  The maximum Household limit is $109,150
• Greenville 5+ in the Household:     The maximum Household limit is $109,150
• Charlotte 5+ in the Household:      The maximum Household limit is $112,550
• Wilmington 5+ in the Household:  The maximum Household limit is $109,550
• Asheville 5+ in the Household:       The maximum Household limit is $109,150

Home Eligibility: The home must be within the USDA Home Loan Footprint.  There are some significant map changes that are due to take effect in North Carolina starting in September of 2020 .  Assuming they go into place, over 25% of the neighborhoods that currently qualify for the program, including neighborhoods in Knightdale, Clayton, Wilson, High Point, Rocky Mount, Kinston, New Bern, Belmont and Leland – will no longer qualify for the program.  If you are considering a purchase in one of these areas, we recommend that you purchase a home before the end of August, 2020.  This may give you enough time to get through the USDA Underwriting system.

There are some things you should consider, that will make getting your loan looked at faster, if you are going to be in that “crunch” of September.  The loan MUST BE underwritten by USDA by the end of September to be eligible to purchase a home where the maps are changing.

Credit Scores: The Credit Score requirements for USDA Home Loans are kinda’ Conservative. This is understandable, because of the risk of making a loan when the borrower has no equity in the home.  These are the riskiest loans to make – so it’s understandable that they are looking for folks with fairly good credit.  You need a score of at least 600, with 640 being the “sweet spot.”  For best pricing, you will need a minimum score of 660.  If you are CLOSE to a 600, we can definitely help you get your scores up to buy a home.  BUT this is not a 3 week project.  It take a little time to get scores up, so if you are trying to buy a house before the maps change – our suggestion is that you look for a home in an area that is NOT changing.  (Call Us- we can help you 919 649 5058)

Debt To Income Ratios:  USDA Loans have only one “ratio” that the Underwriters look at.  That’s the total debt ratio – meaning we take your new house payment, including the Homeowner’s Insurance, taxes, USDA PMI, and any homeowner association fees – and add that to your car payments, student loans and credit card bills.  Fortunately, they do not count childcare or cell phone bills or health insurance.  So, they take ALL of the monthly payments and divide that into your GROSS monthly income.  So let’s say you make $60,000 a year, ideally, USDA would like for your TOTAL monthly debt to be no more than $2100, or 42% of your Gross Monthly income of $5000.  We have seen approvals up to $2900 in debt (or 48%) of total gross monthly income approved.

We also offer the NCHFA / NC First Time Home Buyer Programs to help you with a USDA Loan in NC.  These programs include Mortgage Tax Credits, Below Market Mortgage Interest Rates and a 3% down payment grant to go towards closing costs!

Connect with us on Google Plus or Facebook! If you have questions about qualifying for a USDA Home Loan in NC, call Steve and Eleanor 919 649 5058 Remember, the USDA Home Loan Maps could be changing September 2020… in fact, almost 1/3 of North Carolina could LOSE the ability to do USDA Home Loans! Yikes!