USDA First-Time Homebuyer Loan Requirements
Published May 30, 2022
The U.S. Department of Agriculture strives to make it easier for low-income homebuyers to achieve their dreams of homeownership. Specifically, the USDA offers a loan program that is exclusively designed to facilitate the purchase of rural properties. Some of the key advantages of USDA loans are related to the down payment requirement and the competitive interest rates. However, before you apply, you should be aware of the USDA first-time homebuyer loan requirements.
Credit score requirement
Credit score qualification is one of the USDA first-time homebuyer loan requirements that you understand. All applicants should have at least a 640 credit score. Those who have a higher debt-to-income ratio may need to have a 680 credit score or higher in order to qualify for a USDA home loan. Credit scores under 640 may also be considered, but stricter underwriting guidelines will be in place.
The USDA first-time homebuyer loan requirements also include a maximum debt-to-income ratio requirement. To determine your DTI, your total monthly debt payments will be divided by your monthly income. The mortgage payment will also be factored into the equation. The maximum ratio permitted with a 640 credit score is 41%. However, an exception to the DTI requirement may be made up to 43% if you have a 680 credit score or higher.
There are income requirements in place for USDA-backed loans. The USDA first-time homebuyer loan requirements for income vary based on the county where the property is located. Additionally, the number of people in the house will be taken into account. Their ages, as well as their disability and full-time student status, will be considered. Regardless of the income requirement that pertains to your loan request, you must have at least 24 months of stable income history to qualify.
Down payment requirement
The down payment requirement for USDA loans makes them popular for many buyers who are interested in living outside of a metropolitan area. In fact, this is a zero-down loan option. However, you will be responsible for paying closing costs for your new loan. There is not a private mortgage insurance, or PMI, requirement for USDA loans.
There are also USDA first-time homebuyer loan requirements for the home being purchased. Only homes in approved geographic areas may qualify. Generally, metropolitan and suburban areas are not approved. In addition, the home should have 2,000 square feet of living space or less. The loan limit will vary by location, and the home must be reasonably priced for the market. You can learn more about acceptable markets and properties for this loan program through the USDA website.
Find out if you qualify
You can see that there are many specific USDA first-time homebuyer loan requirements. These requirements vary based on a variety of factors, including where the property is located, your credit scores, how many people will live in the home, and more. With such variations in place, it is important to get prequalified for a USDA loan upfront. If you’re unsure whether a USDA loan is best for you, get in touch. We can review your qualifications and make recommendations for how to proceed.