USDA Loan Requirements
USDA loans offer many incentives to home buyers, include 100% financing (no down payment is required), low rates, and other advantages. There are some restrictions, however, which are based upon borrower eligibility (credit and income), and property eligibility (location and condition). You can learn more about these specific requirements below. If you are unsure about any requirements, a loan officer can assist you with your questions.
USDA Loan Credit Requirements
There are some mandatory requirements that must be satisfied for a USDA loan. This includes minimum credit scores, and other aspects of credit history.
Credit Score – A minimum credit score of 640 is required for an automated approval. However, borrowers with lower credit scores (within the 580-639 range) may still get approved, but it will require having sufficient "compensating factors".
Trade-lines – USDA loans require that you have 3 trade-lines. Some great news, is if you lack official trade-lines on your credit report (such as credit cards or auto loans), you may be able to qualify using non-traditional sources, such as water, cell phone, electric, or other monthly bills you show timely payment history on.
Tax Liens – Your credit report must be cleared of any tax liens. You cannot owe the IRS or have any other federal debts.
Foreclosures – The USDA rules for foreclosures is that you must wait at least 3 years after the date of the foreclosure.
Bankruptcies – The requirements for Chapter 7 Bankruptcy (in which a court discharged most or all of your debt) is to wait at least 3 years before you are eligible for a USDA loan. The rules for a Chapter 13 Bankruptcy (where you were placed on a payment plan), are that as long as you show 12 months of on time payments you may be eligible for a USDA rural development loan.
USDA Loan Income Requirements
USDA loans have two different types of requirements related to income. The first is that you cannot make too much money and be eligible for USDA loans. There are strict income limits for how much money you can make. The second set of rules is related to your debt-to-income ratios.
USDA Loan Property Requirements
Eligible Areas – The USDA strictly outlines areas (or “zones”) where USDA loans are ineligible. These areas are only in cities and large towns. Generally, any town with 20,000 people or less is eligible for a USDA loan. However, areas 20-30 minutes just outside of cities and towns are eligible.
Types of Properties – USDA loans are available for normal residential housing, and not any income-producing properties. You may not purchase a farm, or any type of investment property. USDA loans are exclusively available for 1-unit homes, such as Single Family residences, or 1 out of 2 units in a duplex.