If you're like many people who've had a bit of bad financial luck in your time, you probably believe that home ownership isn't an option for you. Perhaps you've filed bankruptcy in the past, have less than a perfect credit score, or simply can't save up the required down payment. Fortunately, you do have options concerning home ownership that you may not be aware of. For instance, the U.S. Department of Agriculture (USDA) has a home loan program targeted toward those who can't qualify for mortgages with traditional lenders. Here's what you need to know about the program:
USDA Loans Aren't Just for Rural Properties
Many of those who have heard of USDA loans are under the mistaken impression that they're meant for rural properties meant for farming, but this is far from the case. These loans are for single-family, owner-occupied residences that are located outside of the urban core of major cities, and 97% of the country is situated in a zone that is eligible for these loans. You can easily check on the eligibility of specific properties using the USDA's on-site eligibility tool.
Income Limits Apply
Although income limits apply to USDA home loans, they're calculated based on the median local income for the county in which the property is located. In general, eligibility caps out at amounts higher than 115% of the median income for the size of your family. However, those who are slightly over this shouldn't lose hope — there may be deductions that you're failing to take that could bring you under the limit. You'll also need to prove a debt-to-income ratio that is less than 41%.
You Need a Credit Rating of 640 or More
It would be very difficult to get a traditional home loan with a credit rating of less than 700, which makes the USDA home loan program ideal for those with less than stellar credit. However, you won't be eligible if you've had a foreclosure or bankruptcy within the past three years from the date you apply for the loan. You also won't be eligible if you've defaulted on student loans. Even if they're so old they've fallen off your credit report, lenders have access to a federal database of those who have defaulted on student loans or who have IRS offsets for back taxes. The good news is that you can rehabilitate the loan by contacting the lending agency and making 10 consecutive payments.
Reach out to a real estate agent to learn more about your financing options.