Meeting USDA Loan Eligibility Requirements: Credit, Income, and Property
To be eligible for a USDA loan, applicants must meet the USDA’s basic eligibility requirements, which cover credit, income, property usage, and location. These factors play a crucial role in fulfilling the USDA’s mission of providing safe and sanitary housing for low to moderate-income families.
Minimum Qualifications for USDA Loan Eligibility guidelines require:
- U.S. citizenship or legal permanent residency
- Ability to prove creditworthiness, typically with a credit score of at least 620
- Stable and dependable income
- Willingness to repay the mortgage, evidenced by a history of no late payments or collections for 12 months
- Adjusted household income equal to or less than 115% of the area median income
- Property serving as the primary residence and located in a qualified rural area
Credit Requirements
Applicants must show stable income and a credit history that demonstrates the ability and willingness to repay the loan. There is no minimum credit requirement for USDA loans, but a credit score of 640 or higher allows eligibility for the USDA’s automated underwriting system. Lower credit scores may still qualify but require manual underwriting with potentially stricter guidelines. Lenders review factors such as credit score, repayment patterns, credit utilization, and length of credit history. Applicants without established credit may still be eligible but typically require verification from alternate sources.
Income Requirements
The USDA evaluates four income calculations throughout the loan process to determine income eligibility: annual household income, adjusted annual household income, USDA qualifying income, and repayment income. Applicants must have a verifiable, stable income likely to continue. Lenders verify income using two years of income tax returns and recent paystubs to assess consistent employment. Income limits vary by location and household size, with the USDA setting a maximum adjusted annual income based on the area’s median household income.
Property Requirements
The USDA loan program aims to provide safe and sanitary housing for low to moderate-income households. Property requirements include the home being used as the primary residence, having direct access to a street or road, and having adequate utilities and water and wastewater disposal. USDA loans cannot be used for income-producing properties, but properties with non-operational commercial facilities may still be eligible. Eligible property types include new construction, manufactured or modular homes, condos or townhouses, and short sales and foreclosed homes.
Location for USDA Loan Eligibility
The USDA loan program primarily targets rural areas but also includes many suburbs. Rural areas are defined as open country, not part of an urban area, and can have populations of up to 35,000 depending on the designation. Approximately 97% of the nation’s land, including an estimated 100 million people, is eligible for a USDA loan.
Meeting USDA loan eligibility requirements is essential to take advantage of this excellent loan option for homeownership. Contact a home loan specialist to explore your eligibility and start the application process today.
