The Home Buyer's Korner

Information presented should be used for educational purposes only.

July 27th, 2014

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USDA Home Loans

Snoopy and Charlie BrownThe United States Department of Agriculture (USDA) Home Loans comes with unique financing features like 100% financing or zero down payment required.

The Rural Development Department of the USDA and select lenders approve these loans based upon income, location and use of the property. One of the major requirements is that the home must be located in a census tract area of no more than 35,000 residents, occupy the homes are your primary residence; be able to show stable employment and not exceed the median income by more than 115%.  It’s worth noting here that if you have someone in the home and there income is not being used to credit qualify for a USDA mortgage their income is considered for median income qualifications.

Home Buyers need to provide evidence of a satisfactory rent history; have a responsible credit history and not have any delinquent debts owed to the government, like back taxes. Oh, and homes with pools aren’t allowed.  Go figure!

Just like regular mortgage loans, there are two formulas that help determine whether a borrower’s household income is sufficient enough for a mortgage. Total monthly debt payments for each household should not exceed 41 percent of gross monthly income. This percentage is called the debt-to-income ratio (DTI). The total payment on the monthly mortgage cannot exceed 29 percent of the total qualifying gross income. The payment amount includes the principal and interest as well as required insurance.

Types of Homes Approved for USDA Loans

A USDA loan isn’t for vacation or second residences. Loans will be approved only for the following types of structures:

  • Modular residences
  • New manufactured homes
  • Single-unit homes(new or existing)
  • Some condominiums
  • Townhouses

Home Buyers interested in a USDA Home Loan don’t need a down payment and showing reserves isn’t required, but you must be enough money in a monthly budget to afford the mortgage payments and all the necessities of life such as food, medical expenses, and clothing.

Just like traditional mortgages, USDA loans feature a fee called “closing costs,” which include items like escrow and lender fees. These fees may be negotiated. It’s important for home buyers to note that closing costs are not included in the loan amount, so a home buyer must come up with those fees and one way to do that is to ask the seller to pay for your closing cost.  Work with your real estate agent and mortgage lender to insure you’re submitting an offer to purchase with specific seller concession verbiage that clearly states, “Seller to pay all borrower closing cost to secure a USDA Rural Development Loan”.  You mortgage lender will provide you a Good Faith Estimate you can share with your real estate agent showing how much your closing cost will be and your agent will have the necessary information to draw up an offer.

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USDA RURAL DEVELOPMENT

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A SIMPLE HOME SHOPPING INSPECTION TOOL

Organizing your home shopping experience affords a wise decision making process.

This simple home inspection tool makes your ultimate buying decision a smart one.

To print this document click on “Open in New Window” located at the lower right corner; click on “File”; then click on “Print”. In the center of the screen you will have the option to “Create A Printable PDF of the Presentation”.

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