USDA Loans in PA: The Best Way to Finance Your Home

USDA loan graphicUSDA home loans offer a competitively priced mortgage option that helps to make purchasing a home more affordable for low income individuals living in rural areas.

The USDA loans that are eligible for approved USDA loan lenders typically have a minimum credit score of at least 640 to get them.

However, the USDA program does not have a minimum credit score for borrowers, so borrowers with scores below 640 may be eligible for USDA-backed mortgages.

If your credit score is below 640, there’s still hope, and it won’t cost you much money.

Requirements for a USDA Home Loan

The USDA home loan program has no down payment requirement and relaxed credit score minimums, making it an attractive option for many potential homeowners. Borrowers must meet certain eligibility requirements to qualify, which are based on factors such as income, payment history, and debt-to-income ratio.

To be eligible for a USDA home loan, you must meet the following requirements:

USDA Residency Requirements

Applicants for a USDA home loan must a U.S. resident, permanent resident alien, or non-citizen national.

The USDA program requires borrowers to move into the property within 60 days of purchase and make the home their full-time residence. 

Active duty service members can receive an exemption from this requirement.

USDA Home Loan Location Eligibility

Homes must be located in rural or suburban fringe regions. The USDA's eligibility website can determine if a home is eligible for a USDA loan. USDA area eligibility lookup

Income Limits for USDA Loan

To be eligible for a USDA home loan, your annual income must be below the median household income in your area. You can use the USDA eligibility map to see if you qualify for a USDA loan in your area.

The general USDA income limits are:

  • 1-4 member household: $91,900
  • 5-8 member household: $121,300

The USDA uses location and the number of people living in a home to determine the appropriate income limit for each area.

The household income must be at or below the stated income limits for the area.

USDA determines income eligibility based on 115% of the median household income for the area. See USDA income limits

Credit Score for a USDA Loan

There is no need to have a perfect credit score in order to get a USDA home loan. In fact, many people who do not have an excellent credit rating are still able to get approved for a USDA mortgage. The minimum credit score required for a USDA loan by lenders is 640, but lenders may set their own requirements above or below this credit score.House for sale

USDA Down Payment Requirements

One of the benefits of getting a USDA home loan is that there is no down payment required. This makes it possible for more people to buy a home, even if they do not have a lot of money saved up.

Upfront Guarantee Fee

You are required to pay an upfront guarantee fee in order to get a loan from the USDA. The cost of the guarantee is equal to one percent of the total loan amount. At the time of settlement, the guarantee fee may be paid in cash or it may be funded with the loan. The cost for the guarantee assures that the USDA will compensate the lender in the event that you do not pay back the loan.

The calculation for the USDA guarantee fee is as follows:

Loan amount = $100,000 x 1% = $1,000

Loan amount ($100,000) + guarantee fee ($1,000) = $101,000 new loan amount with financed guarantee fee.

USDA Annual Fee

A continuing charge must be paid by the borrower on a monthly basis in addition to the one-time guarantee cost that must be paid upfront.

This fee is similar to private mortgage insurance (PMI). In order to calculate the monthly payment, multiply the loan sum by .35% (current percentage).

The cost is then divided by 12 months and applied to the monthly mortgage payment. 

Here's an example:

Loan amount – $100,000
Annual Fee Percentage – X .35%

Total Cost for the Annual Fee = $350.00

Monthly cost ($350/12 months) = $29.15

USDA Appraisals

When you decide to take out a USDA loan, the government will require an appraisal of the property by an independent third-party. This is to ensure that the home meets the requirements for a USDA loan and that the purchase price is appropriate.

The appraiser is responsible for:

  • Determining if the home's valuation is suitable for the loan amount.
  • It ensures that the home complies with USDA guidelines. To be eligible, it must be in basic habitable condition. Roofs and heating systems must function properly and be up to code. It is not acceptable to have windows that have been broken.
  • The appraiser will inspect the property for bug damage and ensure that the well and septic systems comply with USDA regulations.

USDA appraisers should not be confused with home inspectors. The role of the appraiser is to determine value and make a general overall condition of the property.

Home buyers employ home inspectors  to get an in depth investigation of the various components of the home. (i.e., heating, air conditioning, roof, foundation, etc.)

USDA Guarantee Loans versus Direct home Loans


Guarantee loan program

USDA approved lenders offer the USDA guarantee loan program. Prospective home buyers must meet the credit, income, and area guidelines to obtain a USDA loan.

Direct Loan Program

Young home buyersThe Direct loan program is similar to the guarantee loan, however, the household income must be 50% or less than the area median income. The USDA handles the Direct loan program applications.

The Direct Loan Program aids applicants with low and extremely low incomes in obtaining housing that is good, safe, and hygienic in rural regions that are eligible for the program. This assistance is provided in the form of payment assistance to boost an applicant's capacity to repay the loan. A form of subsidy known as payment assistance lowers a borrower's monthly mortgage payment for a limited period of time. The amount of aid received is proportional to the family's income after adjustments.

Properties requirements:

  • The size of the home must be 2,000 square feet or less.
  • Not have a market value that is higher than the maximum loan amount allowed for the location
  • Not income producing (no working farms).

USDA Refinance Options

The USDA offers three refinance programs.

Streamlined Assist Refinance Program

Borrowers who already have a USDA direct or guaranteed home loan and have little to no equity have the ability to refinance their loans into ones with more manageable monthly payments through the streamlined help refinance option. The following are some of the program's features:

  •  Except for direct borrowers who received a subsidy throughout the period of their loan, there is no requirement for a new appraisal.
  • There will be no required inspections of the property or calculations of the debt ratios.
  • The lender must verify that the applicant has paid their mortgage on time for the year prior to the refinance application.
  • There  must be a $50 net decrease to principle, interest, real estate taxes, and homeowners insurance payments (referred to as PITI) in comparison to the PITI payments that are now being made.
  • Closing and prepaid costs can be rolled into the loan.

USDA Standard Refinance Program

The Standard Refinance program is similar to the Streamline Assist program, but there are a few subtle differences. The key difference is that there is no requirement for a $50 payment reduction.

  • The home must be your primary residence
  • Your current mortgage must be a USDA mortgage.
  • Your current mortgage must be in place for at least one year.
  • You are need to provide proof that your income together with a debt-to-income (DTI) ratio is acceptable to the USDA
  • The typical requirements for credit apply.
  • You are required to have a perfect payment history for the preceding six months.

Rotating question markFrequently Asked Questions (FAQs)

Q. Are there any closing fees associated with a USDA loan?

A. USDA home loans include closing fees, however there is no necessary down payment (100 percent financing), and the house seller may pay up to 6% of the buyer's closing expenses.

Q. Are USDA loans a poor investment?

A. Loans from the USDA are not a bad choice for an investment. In point of fact, they are an excellent choice for those who are interested in buying a house but do not already possess the funds necessary for a down payment. The United States Department of Agriculture (USDA) provides loans to those who wish to buy a property without going into serious debt since the loans have low interest rates and flexible terms.

Q. Is it difficult to close USDA loans?

A. USDA lending requirements are identical to those for FHA loans.

USDA loans typically take between 30 and 45 days to process.

The length of time required to complete a USDA loan varies according on the applicant's readiness and the appraiser's schedule.

Q. Are USDA loans difficult to obtain?

A. USDA loans adhere to FHA standards.

USDA loans are somewhat more restricted than conventional loans, but not so much so that the loan should be disregarded.

Q. Are USDA loans a good investment?

A. The USDA loan is really a better option than an FHA loan, since it requires less upfront mortgage insurance and also has a lower monthly mortgage insurance cost.

The significant distinction is in the income and location criteria.

Q. Can I use a USDA loan to purchase a fixer upper?

A. The USDA loan is not meant for renovations of any kind, whether small or large.

The FHA 203(k) loan program is intended for the purpose of purchasing and rehabbing a property.

Q. Are USDA loans popular with sellers?

A. I believe many house sellers are unaware of USDA loans.

They often follow the real estate agent's advice.

Q. Is it necessary to be a first-time home buyer to qualify for a USDA loan?

A. USDA loans do not have a first-time home buyer requirement.

Q. Are you required to repay a USDA loan?

A. Yes

Q. How do you determine whether or not a house is USDA approved?

A. As stated before 

Conclusion

In conclusion, USDA loans are a great option for those looking to purchase a home in a qualifying rural area. With a lower interest rate and no closing costs, you'll be able to afford your dream home without breaking the bank. To learn more about USDA loans, please visit USDA Loan Plus.