Some people long for a home with a lot of outdoor space they can use. Whether you want to own and ride horses or start up a family garden, you’ll need that extra room. However, not everyone has the ample funds required to buy a plot of land or build up the home of their dreams.
Before buying land, you also have to consider the time it takes to build a house, any needed improvements, and financing options. USDA loans were created specifically for rural homebuyers who aren’t wealthy and can’t qualify for a traditional mortgage.
Here’s what to expect when applying and how to work your way through the USDA loan process step by step.
What is a USDA Loan?
The U.S. Department of Agriculture’s mortgage program was created to help eligible rural homebuyers. It’s a zero down payment mortgage issued through the USDA Rural Development Guaranteed Housing Loan Program.
One benefit of a USDA loan is that home-buyers with low credit scores are still eligible. No downpayment is required, and the payback period can stretch for up to 38 years in certain cases.
Types of Home Loan Programs
There are two main types of loans to consider before starting the USDA loan application process. A single-family housing direct loan provides assistance to low-income applicants with a varying repayment period. A guaranteed loan helps the same category of applicants but comes with 100 percent financing at a 30-year fixed-rate term.
The main difference between the two is that the USDA acts as the lender with a direct loan. Private lenders fund the guaranteed loan with the USDA backing each loan against default.
Financing is provided to moderate and low-income households, so there are strict income requirements applicants must meet.
The desired property must also be in an eligible rural area with a population below 35,000. Applicants must be U.S. citizens with a dependable income going back 24 months.
Direct Attribution USDA Loan Process Step by Step
Unless you’re applying for a loan from your local bank, it can be a confusing process. Despite that, the USDA mortgage program is worth trying out. Currently, over 97 percent of the United States landmass is USDA-eligible.
Here’s how to navigate the USDA loan process step by step.
Before you apply for a loan, make sure you meet their requirements. As previously stated, the USDA loan is meant for an eligible rural area. You also have to consider personal income, credit score, and residency.
USDA loans help families that display economic need. However, you must also have a stable income and can afford the mortgage payments that come with the loan.
As for your credit score, it must be at least 640 or higher. However, there is a little leeway if you’re slightly below it.
The first step to getting your mortgage loan is to get pre-qualified. In this step, you provide general information regarding your income, assets, debts, and expenses. Your lender will look at your bank statements to check for financial responsibility and to confirm that you pay your debts on time.
During this process, you can determine the price range you qualify for which in turn can help you decide on a property to purchase. Keep in mind that getting pre-qualified does not ensure that you will receive a loan, though.
Find a Home and Make an Offer
The USDA has an interactive map to see if a home is in an area defined as rural. For a property to qualify for the loan, it needs to be outside a city or town.
Once you’ve found a home meeting the qualifications, you’ll have to make an offer. If you’ve received mortgage pre-approval, you can show the seller that you’re putting in a serious offer. A pre-approval letter is only valid for two to three months, so remember to ask for updated paperwork if you’re struggling to find a home.
USDA Loan Appraisal
Often, lenders will send an independent third party to verify the value of a property. This appraisal helps to determine if the home and property value is worth the loan amount. It also allows them to ensure it meets the loan’s criteria.
A home must be in a basic livable condition with roofing and heating systems. There must also be no sign of insect damage or plumbing issues.
The appraisal must be completed within 150 days of loan closing. Anything older than that is eligible for an appraisal update.
USDA Loan Closing Process
After the appraisal, you and the seller will be under contract. At the same time, the lender and an underwriter will be putting the finishing touches on your file. They’ll make sure everything on your application is verified before they finalize the sale.
The closing documents will get sent to the escrow company where you will sign them. After signing on closing day, you’ll officially own the house.
How Long Does It Take to Process a USDA Loan?
The overall application process can take anywhere between a month to two months. It can take up to a week to get a preapproval letter, another week to complete the home’s appraisal, and another few weeks for them to complete a final “sign-off”.
Times may vary depending on your own situation and how long it takes to find a USDA-eligible property you’re interested in.
USDA Loan Application Process Made Easy
Applying for a USDA loan may be the perfect option for anyone struggling to gather the funds to buy a large property outside the big city. Don’t be afraid to speak to a lender to learn more about all of the USDA loan process step by step.
Society Mortgage can help get you started on your USDA loan application. We’ve previously worked with people with lower credit scores, so don’t be afraid to give us a call. Contact us to learn more and speak with a USDA loan expert.