Probably the first things that come to mind when you think of the United States Department of Agriculture (USDA) are inspections of meat-processing facilities and food safety. But did you know that the USDA also makes mortgage loans? Yes, the USDA’s goal is to assist rural households in buying a house so that their communities can flourish and their quality of life can improve. As a result, they provide excellent rates on house loans with no down payment needed to families with low to moderate incomes. What you need to know about USDA loans when buying a home in Anaheim, CA if you’d like to take advantage of this opportunity.
Overview of USDA Loans
If you’re thinking about applying for a USDA loan to buying a house in Anaheim, CA, you should understand what it is and some of its fascinating history.
“A USDA loan is a government-supported, no-down payment mortgage with government-assisted mortgage rates, so you can get cheaper rates than with programmes like the FHA and VA that are similarly backed by the government. You can borrow as little or as much as you need to buy a home with a USDA loan because there is no down payment necessary, as long as the property is in a rural, or sparsely populated, area.”
Nevertheless, the term “rural” doesn’t always refer to a farm or ranch located in a remote area. Instead, “rural places may include the outskirts of town, a locale with lots of countryside, or a suburb of a large metropolis — practically anywhere that’s not labelled ‘urban,'” the author writes in this case.
In 1949, when housing was scarce and millions of people were compelled to share homes as a result of World War II, USDA loans were first introduced. The USDA enacted the American Housing Act, which led to the construction of millions of new homes, since it understood that homeownership could strengthen communities and generate jobs (as well as tax money).
But people had to be able to buy these many new homes. So the government-backed USDA loan program was created.
USDA Loan Requirements
There are, though, some fairly exact requirements for buying a house with a USDA loan. These are . . .
- Location – “Your home should fit the USDA definition of a “rural region” if the city in which you are buying a home has fewer than 10,000 residents. Even unincorporated areas are eligible. Some cities and towns with up to 20,000 residents may be eligible for USDA support.
- Income – You need to make less money than the local USDA income limitations in order to qualify. “The maximum is 115% of the median income in your area. You cannot make more than $57,500 if the median income in your area is $50,000.
- Property – Loans from the USDA are reserved for primary residences (though this can include new manufactured homes).
Qualifying Criteria
Buying a house with a USDA loan also means that you’ll have to meet certain qualifying criteria, such as . . .
- A credit score of at least 640 (which is slightly higher than that required for conventional loans at 620)
- A debt-to-income ratio (DTI) of no more than 41% (which is a little stricter than the DTI required for most conventional loans and certainly FHA loans)
- A provable record of at least two years of steady employment
The good news, then, is that “[i]f you meet all of those requirements – and if your home purchase price does not exceed the home’s appraised value – you could buy the home with no money down.”
Process of Buying a House With a USDA Loan
Now when it comes to USDA loans and actually buying a house Anaheim, CA, here’s how the process typically goes . . .
- Pre-approval – The pre-approval procedure demonstrates the performance of your application in a real underwriting procedure. Without committing, you’ll have a fair notion of your pricing range and monthly payment amount.
- Finding an eligible house – A single-family home in an unincorporated region or a city or town with a population of 20,000 or less will typically qualify. (Contact a Anaheim, CA agent to verify that the home you’re interested in qualifies.)
- Loan application – Your next step is to “apply for the USDA rural development plan” after receiving pre-approval, locating a qualified home, and making an offer.
- Following the loan officer’s instructions – You will be guided through the procedure of submitting financial data for the underwriting process by your loan officer. If your loan officer asks you for more information, be sure to get back to them as soon as you can.
- Home inspection – The home inspection happens at this point. “The USDA will inspect the house you’re buying to ensure that it offers the bare minimum in terms of safe living conditions.”
- Closing – When you receive the keys to your new house, this is the last step. “It’s time to make the home purchase official if you’re happy with the home inspection and the underwriters for your loan are happy with your financials.”
We’re Here to Help
The USDA “guarantees your mortgage to your lender,” which is one of the benefits of using this type of loan to purchase a home. Your lender will be informed that your payment will be made if you do this. As a result, the lender is at lower risk and can provide cheaper interest rates with no down payment. The slightly tougher loan requirements and the relatively stringent property qualification requirements present a challenge. But we’re here to support you.
Our knowledgeable agents can assist you in finding properties that qualify and will walk you through the procedure. If you want to buying a house in Anaheim, CA and are thinking about a USDA loan.