The USDA Loan Process Step-by-StepÂ
USDA home loans offer eligible rural and suburban homebuyers an excellent opportunity to buy a home without a down payment. Plenty of properties are available in rural areas that can make great homes and become yours at favorable loan terms, such as a low interest rate.
Backed by the Department of Agriculture, USDA loans aim at helping rural communities maintain and even grow their populations. If your lifestyle or work can support living in a rural area, then a USDA loan could be the perfect match for you. Remember that some suburban areas qualify for a USDA loan, so you could benefit from proximity to a town while still getting a USDA loan for your home.
Let’s go through the USDA direct loan process step-by-step.
1. Check Your Eligibility
Before beginning the application process, determine if you meet the USDA loan property and income eligibility requirements. If you are interested in a specific location, check that it’s eligible under the USDA requirements. Remember that this property needs to become your primary residence.
Next, check that your monthly income falls within the USDA income limit for your area, as these loans are designed to assist low to moderate-income borrowers. The current borrower income limit for 2024 is $112,450 for a one-to-four-member family.
Then, check your debt-to-income ratio. USDA loans typically allow for a maximum DTI limit of 41%. Finally, check your credit score. While the USDA doesn’t set a minimum credit score, most USDA-approved lenders require a score of 640 or higher. A strong credit history can compensate for a higher DTI.
2. Gather Necessary Documents
If you have all documentation and paperwork ready beforehand, you can streamline the loan application process. You’ll need to collect proof of income, including recent pay stubs, W-2 forms, and tax returns from the past two years.
Gather your bank statements for the last few months to demonstrate your financial stability. You’ll also need identification documents such as your driver’s license and social security card.
Finally, be prepared to provide information about your rental history and current employment for verification purposes.
3. Find a USDA-Approved Lender
Not all mortgage lenders offer USDA loans, so find one specializing in this financing type. Society Mortgage is a reliable mortgage lender, and we provide USDA loans.
4. Get Pre-Approved
Once you’ve chosen a lender, submit your financial information for pre-approval. Getting preapproved involves a preliminary review of your credit, income, and assets.
If approved, you’ll receive a pre-approval letter stating how much you can borrow. This letter is valuable when you start house hunting, as it shows sellers you’re a serious buyer. It also gives you an idea of how much home you can afford.
5. Find a Home
With your pre-approval in hand, start searching for your dream home.
Work with a real estate agent familiar with the USDA loan program and the specific USDA loan requirements for eligible properties. They can help you find a USDA-eligible home and guide you through the offer process.
Finding a home that meets USDA eligibility factors can take time, but it’s much easier if you can be flexible about the size and exact location of your home.
6. Make an Offer
When you find a home you like, it’s time to make an offer. Your real estate agent will help you draft a competitive offer based on comparable sales in the area. Be prepared to negotiate with the seller on purchase price and contract terms.
7. Complete the Loan Application
After your offer is accepted and you have a purchase agreement, you must complete a full loan application with your chosen lender, such as Society Mortgage.
You may need additional documentation to support your application at this stage. Your lender will also order an appraisal of the property to verify it meets USDA standards and determine its value. Lenders want to ensure that the loan amount matches the home’s value. For example, they won’t lend more than the home is actually worth.
8. USDA Underwriting
Once your application is complete, the underwriter lender will submit it to the USDA for approval. During the underwriting process, the USDA will review your application and verify property eligibility in terms of overall condition and location.
This additional final step in the approval process means that USDA loans can take longer to process than a conventional loan, so you will have to be patient.
9. Close on Your Home
After the final loan approval, all that’s left is closing the deal. You will review and sign the final loan documents and pay any closing costs. You will then receive the keys to your new home. Your lender will offer you guidelines through this process and explain any fees or final requirements.
Applying for a USDA Loan Online
USDA loans are a great way for buying a home in a rural area, coming with important benefits. They require no down payment and offer competitive interest rates to help low and middle-income households access the property ladder. USDA loans are thus a great option if you are a first-time home buyer within the USDA income limits.
Not only do these loans have lower mortgage insurance costs, but you may also be able to roll closing costs into the mortgage loan. However, due to the additional approval step, you can expect the USDA loan process to take longer than conventional loans. Even so, it’s often worth the wait.
Start your online application early and stay in close contact with your USDA lender throughout the approval process. And if you have any questions, our Loan Officers are happy to give you all the additional information you need to begin your USDA loan application. Let Society Mortgage help you buy your forever home and achieve your goal of homeownership!
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Frequently Asked QuestionsÂ
How long does USDA loan approval take?
The approval process typically takes 30 to 60 days. During this period, you need to consider the time needed for processing, underwriting, and approval, and, of course, other varying variables such as the complexity of your application, the current workload of the loan office, or the responsiveness of required documentation.
How to apply for a USDA loan online
Go to our societymortgage.com webpage and follow our easy and convenient process. Fill in the gaps with the required information, including details about your personal and financial situation and the property you are interested in. Soon enough, one of our specialized Loan Officers will reach out to guide you through the next steps and answer any questions you may have.
