What You Need To Know About USDA Financing

13 October 2016
 Categories: , Blog


Are you getting ready to purchase a home and get away from renting? Now is a great time to do it. With there being so many options for low-rate loans backed by the government, it makes buying a home affordable for someone looking to make that big purchase for the very first time. USDA loans do not require a big down payment either, and when combined with the low monthly payments, they make it viable for those that want a home to get a home. Here is what you need to know about USDA financing.

How Your Credit Report Factors Into The Loan

The USDA is the government-run agency that will insure the loan, which you acquire through a bank or private lender. A big factor that determines if you are approved is your credit report. If you have a credit score that is below 580, you will have a problem getting a USDA-backed loan. In addition, factors like if you have filed for bankruptcy, if you have outstanding debts, or if you have debts with late payments can all work against you as well.

The best thing that you can do is find ways to improve your credit score to boost it above 580 before you apply.

How Your Income Matters

Another big factor that will be considered is how much money you make as part of your annual income. Lenders only look at the combined annual income of the people that will be applying to buy the home together, not the annual household income. If you have someone that will be living in the home and paying you rent, this is not factored into whether you can get a loan.

Your annual income is how the lender determines how big of a loan you're prequalified for. This will let you know how big of a home you can afford, which can help guide your search.

How Your Debt-To-Income Ratio Is Calculated

In addition to your income, lenders also look at your debts to determine your pre-qualified loan amount for a USDA loan. This is done by adding up existing debts and expenses that you owe, and how much of your income is needed to pay for those things. If a large part of your annual income is already going toward auto loans, student loan debt, medical bills, and other monthly expenses, it will leave little left to pay for your mortgage. This will play a factor into how much your lender will offer you.

These are only a few factors that play into what your loan amount and interest rate will be. If you need help finding a lender, your real estate agent can help provide recommendations.