How does USDA financing work for a new home purchase?
Similar to both FHA
home loans the USDA will insure a home loan that meets its qualification guidelines. The USDA will underwrite the loan along with the lending institution. So the loans tend to have two underwrites to ensure they meet the guidelines. This additional underwriting may add some time onto the home loan process and, as a rule of thumb, the agents and lenders should take that into consideration if a quick closing is targeted for the purchase.
You can search the USDA Eligibility Map to see if the home you are looking to buy is in a qualifying area for the 100% USDA home loan program.
- Although there is no set minimum credit score for getting a USDA home loan you should have general goal of credit scores of 640 or higher. USDA will allow for a "manual underwrite" which means that a automated underwrite found result of "not approved" and that result maybe overridden by a human reviewing the file. A loan not approved through the automated system should have compensating factors to help get it an approval through the manual underwrite.
- Work history should be at least 2 years but less than 2 years if there was schooling during the previous years for the general area of employment.
- The USDA will finance 100% of the purchase price of the home. So this is a true zero down home loan program/mortgage insured by the Federal Government.
USDA Home Appraisal
- USDA requires a home to be appraised by an approved appraiser. The appraiser is required to review the property and make sure it meets the USDA standards of lending. This is not a home inspection but the property appraisal may point out similar issues as a conventional appraisal.
USDA Home Loans Allows For Seller Concessions - A seller concession is the allowable amount a seller can give in the new home purchase towards the buyer's closing cost. The USDA loan may allow for up-to 4% of the sales price to be giving by the seller to the buyer in order to pay those closing costs.
USDA Closing Cost Rolled into the Loan
- If a home comes in at a higher appraised value vs. the sales price then the buyer maybe able to "roll-in" the closing cost into the new loan up-to the difference between the appraised value and the sales price. So the zero down, no closing cost paid by the buyer at closing is a possibility with the USDA home loan mortgage.