The government created USDA loans to help low-to-moderate-income families become homeowners. Backed by the United States Department of Agriculture, this loan program offers 0% down payment, has low-interest rates, and doesn't often require private mortgage insurance. But although USDA mortgages have flexible borrower qualifications, you have to meet certain requirements to be eligible.
Interested in getting a Texas USDA loan? This article will show you the steps you need to know to qualify for the USDA Rural Development loan program.
One of the most important requirements in a USDA loan is whether or not a property is located in an eligible rural area. USDA's definition of eligible rural areas is not as restrictive as it sounds. This is because a 'rural area' consists of a mix of:
You can check out our other blog to know which areas are eligible for a Texas USDA home loan.
Moreover, USDA loans can only be used to purchase a primary residence. You cannot use it to fund a second home, vacation house, or an investment property.
In addition to being a primary residence, the property must also meet the following criteria to be eligible for a USDA loan:
The primary aim of USDA loans is to assist low-income borrowers in purchasing a home. To fulfill this objective, the USDA mandates that lenders verify if the applicant's household income doesn't exceed 115% of the median household income in their area.
As of 2023, the standard income limit for most counties in the United States is $103,500 for 1-4 member households and $136,600 for 5-8 member households. Income limits may vary depending on the location to accommodate the cost of living.
To determine income eligibility, the USDA measures the annual household income which includes the income of the applicant and all adult household members, regardless of whether they are on the loan.
Lenders use historical data, such as W2s and current pay stubs, to project household income for the next 12 months. They also take into account gross income including salary, overtime, tips, commission, bonuses, and other forms of compensation for services.
However, certain income categories are never counted towards the USDA loan income limit. This includes earned income from a minor, an adult full-time student over $480, and tax credit.
Effective in 2022, the USDA loan limit for most counties in Texas is $336,500. This doesn't mean that you'll receive all of this amount, however. The loan amount that you'll be approved for will still depend on your ability to repay it.
To know the specific loan amount for your county, you can refer to page 86 of the official USDA Area Loan Limit document.
To qualify for a USDA home loan, most approved lenders require a minimum credit score of 640. Nevertheless, the USDA itself does not set a minimum credit score, so applicants with scores below 640 may still be eligible for a USDA-backed mortgage.
If your credit score is below 640, manual USDA underwriting will be necessary. However, you may be able to compensate for your credit score by having a low debt-to-income ratio, substantial savings, or other financial strengths that reduce your risk as a borrower.
Here are other key eligibility requirements that you must prepare for the USDA loan program.
Interested in getting a Texas USDA home loan? Ebenezer Mortgage Solutions can help. Contact us today at (813) 284 - 4027 to get pre-approval or to see if you qualify!