An Overview of Recent Changes Made in the USDA Home Loan Program
United States Department of Agriculture (USDA) loans offer home buyers an opportunity for 100 percent financing to purchase a home in rural and suburban areas of Texas, Arizona, or any other state, at a low-interest rate. Affordable monthly insurance premiums and zero down payment are the two main reasons for the increase in the popularity of USDA home loans among buyers. Introduced in 1949, USDA loans have so far helped more than 1 million individuals purchase a house with little to no down payment. The U.S. Department of Agriculture Rural Housing Service has, however, introduced some significant changes in USDA loan in 2015. The post gives an overview of some of the major updates in the loan program.
2015 Changes in USDA Loan Program
Debt to Income Ratio (DTI)
Earlier, there was no maximum debt ratio requirement for USDA loans, as long as it was approved by their computerized underwriting system (called GUS). As of December 1, 2014, however, the borrower needs to have a debt-to-income (DTI) ratio below 29% for housing. The borrower's debt payment, which includes car and student loan, credit cards and total house payment, should not be more than 41 percent of their gross monthly income. This implies an applicant might not be eligible for USDA loan, if their house payment, HOA fee, insurance and taxes dues exceed 29 percent of their gross income. There, however, is an exception to this rule - if a borrower has a good credit score (680+), some reserves in the bank, and other such compensating factors, the loan may be approved through GUS (USDA's Automation Approval System), even if the DTI is higher than 29/41.
Credit Score Qualification
Minimum credit score requirement is another major update, introduced by the USDA in December 2014. Prior to introducing the change, an applicant with a credit score of lower than 620 was eligible for a USDA loan. After the update, the new minimum credit score requirement or an applicant to qualify for a USDA loan has been changed to 620-640 only if the loan runs through GUS and over 641 if the loan is underwritten manually (without it running through GUS).
Upfront Funding Fee
The latest change in USDA program is the rise in upfront funding fee from 2 percent to 2.75 percent. The change was introduced to enable the $24 billion USDA loan program to sustain itself without a congressional appropriation to balance the credit-related costs.
A Few Last Words
The loan provided by USDA is not just targeted towards farmers and ranchers. Occupation of the applicant is not a determinant factor for the qualification process. Eligibility to apply for USDA loans depends on the income of the applicant and location of the property. Service First Mortgage - The Davidson Group assists clients to obtain USDA and VA loans approved in a hassle-free way, so that buying a property is always a seamless experience. To learn more about USDA loan eligibility criteria and the application process, feel free to connect with one of our mortgage experts for a free consultation.