What is a USDA Loan?
The United States Department of Agriculture (USDA) offers a home loan program for anyone living in designated rural areas. The USDA loan program has many benefits:
- It allows for a small or even no down payment with 100% financing for eligible first-time or repeat borrowers
• It is available either to first-time or repeat borrowers.
Note that both potential borrowers and the home in question must meet eligibility requirements as specified by the USDA.
Changes to USDA Loan Qualification Requirements
To ensure the simplicity of their guidelines, the USDA periodically reviews and updates their loan qualification requirements. In March 2016, the USDA released updates – both new guidelines and clarifications to existing ones – to its loan requirements. Some of these changes are summarized below:
New Guidelines Regarding USDA Home Loan Requirements
Below are just a few of the new guidelines that have been added to the USDA home loan requirements:
- Discount points may be financed for both low and moderate borrowers, whereas before they could only be financed for low-income borrowers.
• Manufactured homes and site condominiums are allowed to be closed as a single close construction loan. Other condominiums are not allowed to be closed this way.
• Military applicants do not need to provide documentation of their discharge within one year. However, they need to indicate that they can meet the occupancy requirements after being discharged. If they are on active duty, they will be considered to meet occupancy requirements if their family will live in the property as their primary residence.
• Additional income types that were previously excluded when calculating a borrower’s annual income have been added to the guidelines. Ask your mortgage lender about these additional income types.
• You now need to include any income increases of every adult living in the property as part of the annual income when that increase occurs on or before the closing date.
• When spouses have separated, the income of a borrower’s spouse will be excluded when calculating annual income either when they have lived apart for at least three months or legal proceedings for divorce or legal separation have begun.
• Foster care payments can now be considered as repayment income, regardless of the relationship between the foster child and borrower.
Changes to Existing Guidelines Regarding USDA Loan Requirements
Below are just a few of the existing guidelines that have been changed to the USDA home loan requirements:
- Flood insurance is now accepted for existing homes, meaning that borrowers can apply for loans on homes that are located in a floodplain.
• Educational savings plans or 529 plans that have penalties when you withdraw funds are no longer included as one of your assets when qualifying for conventional credit.
• Credit reports can be a maximum of 120 days old when your loan closes.
• A borrower must have documented proof of either an acceptable credit history or an eligible validated credit score to be considered eligible for a USDA loan.
• The primary income earner in a household does not need to be the primary borrower for a loan.
• A mortgage lender can now consider those borrowers who have a bankruptcy debt restructuring plan, and have successfully completed 12 months of consecutive payments.
What You Can Do
The summary above provides an overview of the current USDA updates. If you are considering a USDA loan, contact a mortgage lender, such as Shamrock Home Loans, for full and complete details about these changes. Getting informed is the first step to the path of home ownership.
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