The housing market is going strong with increased buying activity through Virginia. More first-time home buyers are now entering the market and looking for mortgage plans that offer limited down payment and secure fix rate terms. The USDA (United States Department of Agriculture) still offers 100% financing home loans across eligible rural housing locations in VA.
USDA home loans are loans that are insured by the USDA to provide protection to the borrower in case a buyer defaults. Individuals can acquire these loans from the USDA-approved lenders with flexible terms on down payment and interest rate. However, since the market crash many years ago, the USDA has made a few adjustments to its policies that determine whether or not you qualify for USDA-insured loans.
Credit Score
The buyer’s credit score and history play a crucial role in determining the eligibility of a USDA-insured loan. Your current credit report and history will allow the lender to have a better understanding of your financial situation. A credit history with many late payments, poor financial decisions, and delinquency will limit the mortgage options that you get approved for. USDA-insured loans with a $0 down payment are available to applicants with a credit score of 620 or above. That said; individuals with lower credit scores may still become eligible for USDA home loans but will not have has much flexibility and may be required to make a greater down payment.
Debt-to-income ratio
Careful analysis has to be done here. Lenders vary on precise amounts but a housing expense higher than 30 percent is risky for USDA loans. Total debt (housing + revolving/installment debt) should not exceed 42%.
Employment:
Buyers will need two years of consistent employment with no unexplainable large gaps in employment. Income will need to be documented with the most recent (2) years tax returns and/or W2. Also the last 30 days of pay stubs. New home buyers just graduating from college and starting a full-time job is the exception to this two-year rule. Also, note that disability and social security income can be used to qualify. Self-employed borrowers will need a two-year history.
USDA Loan Benefits:
- Easy to qualify – Prequalifying for a Virginia USDA loan is pretty simple. Since the USDA insures your house loan, the lenders and banks make it easy for anyone to qualify that meets the basic requirements. The main components of qualifying are the buyer’s credit and income/employment. Additionally, the home to be purchased must be located in a USDA approved zone
- Fixed interest rate– Fixed 15 or 30-year rate of interest. Compared to other traditional loans where the interests vary, the interest rate remains the same for the entire course of the loan. This period is usually for 30 years. This will allow the home buyer to plan their monthly payments in advance.
- $0 down payment – USDA loans require $0 money down from the buyer. The loan program also permits the home seller to pay all closing costs, up to 6% which is generally enough to cover just about any home purchase.
- No cash reserves or savings required – Compared to most FHA and conventional mortgages that require months of reserves, the USDA does not. This is very helpful for first-time homeowners that have little money saved in the bank.
Questions about applying? Call us today at ph: 904-810-2293