Many Americans like you, dream of owning a home, but they often feel overwhelmed and stressed with the loan application process.
You’re not alone. It can actually be quite confusing.
In this article, we’ll go over what you need to in order to get the ball rolling, as well as the USDA loan approval process and what you can expect.
How to Get USDA Loan Approval
Here’s what you need to know to help you navigate the ins and outs of USDA home loans.
USDA Pre-Qualification Process
The first step is to pre-qualify with a USDA approved lender.
The lender will check your current financial situation and credit scores and situation. They will look at your income, assets, and debt, determining how much you can borrow for your USDA home loan.
Lenders may ask for the following documents:
- Pay stubs
- Tax returns
- W-2 tax forms
- List of assets
- Bank statements
- Credit reports
This is a quick review that can last about an hour. As such, pre-qualifying does not guarantee loan approval. Lenders still need to verify your documents before deciding to approve your loan.
However, pre-qualification can get you started in looking for eligible rural properties.
It also helps to know how much you’re pre-qualified for because it will help you when making an offer, negotiating, and purchasing the property.
USDA Loan Application
In this step, you begin the formal application process. The lender will decide if you can be pre-approved for a USDA loan.
To determine your creditworthiness, lenders will verify your USDA loan requirements. This includes income eligibility requirements such as your debt-to-income (DTI) ratio.
What Is the Maximum Debt to Income Ratio for USDA Loans?
Your Front-End DTI consists of your monthly housing costs and must not exceed 39% of monthly income.
This includes:
- Mortgage payments
- Insurance premiums
- Property taxes
- Homeowner association fees
Your Back-End DTI is for your other debt payments (financial obligations) and can’t go over 41% of your monthly income, including:
- Credit cards
- Auto loans
- Student loans
- Child support
- Alimony
USDA Home Search
Once pre-approved for a USDA loan, you can search for an eligible home.
You can use the USDA’s Property Eligibility Map to look for available homes.
You can also check if your potential property is in an eligible rural area.
Though the loan is not yet final, your lender may issue a pre-approval letter or certificate. The eligibility certificate is valid for 60 to 90 days.
Your lender will check if your home meets USDA’s minimum property requirements. This includes:
- A rural area designation
- The property does not include income-producing land and structures
- Single-family house
- Direct access to a street, driveway, or easement
- Has access to basic utilities and waste disposal systems
- Complies with zoning ordinances
- Property must be fully-functional and structurally-sound
The USDA also requires an appraisal to ensure the property value matches the sale price. A sale agreement is made to formalize the deal if the seller agrees to sell.
USDA Underwriting Process
Once you have a sale agreement, the lender will start the underwriting process.
If you have a credit score of 620 or higher, the lender can use the USDA’s Guaranteed Underwriting System.
Otherwise, they will use a manual underwriting process.
Here, the lender and USDA will check if you meet all the requirements and have repayment ability. They will also check if your property meets the eligibility requirements, especially if you are doing a USDA refinance.
The USDA will then make a final decision on your loan application.
USDA Loan Approval and Closing
Once the USDA approves your loan, the lender will finalize the application.
The lender will notify you and prepare the funding of your loan. They will also coordinate with your closing agent to prepare the documents.
If you’re building your own home using a USDA construction loan for example, the lender will oversee inspections. This is to ensure the build quality and that there is proper disbursement of funds.
How to Apply for a Rural Development Loan
The process for USDA direct loans is similar. However, your local Rural Development office can help handle everything – from pre-qualification to loan approval.
You can process all the loan requirements independently, and you can also enlist the services of a loan packager.
Loan packagers can verify your income eligibility. They also ensure you have all the documents you need to get approved.
If you need help processing your loan, contact us today, and we will be more than happy to assist you.
How to Apply for USDA Home Loan Online
You can apply for a USDA loan online using our website (preferred).
It’s fast, free, and takes under 30 seconds.
The other way is to complete the entire application online with USDA themselves and submit the application electronically to your local service center. It requires a USDA eAuthentication ID and password to verify your identity, which is done by registering an account on the site.
The other option is to fill out the forms manually and mail or fax them to your local service center.
How to Fill Out a USDA Loan Application
There are a few options for filling out a loan application
The fastest and easiest way is to use our website here to check your USDA loan eligibility.
The second way is more drawn out.
Here’s the steps you need to follow:
- Set up your eForms account.
- Download the RD 410-4 Loan Application form. Fill it up offline and upload the completed form.
- Create a Loan Application package. Here, you will select an eligible county and the corresponding field office.
- Attach supporting documents to complete the package. This includes the HB 1-3550 Attachment 3-D, 3-J, and other RD forms.
- Upload your complete package and click submit. You will receive a confirmation number.
- Check your inbox for notifications. You might need to complete the missing items in your form.
- Check the Reports tab to track your pending, accepted, or returned application.
Where Can I Apply For a USDA Loan
If you want to apply for a USDA loan or refinance with a USDA loan, it’s important that you find a USDA lender that you can work with.
It would help if you had a USDA-approved lender with experience and qualifications. The lender must also be able to answer important questions you may have.
For instance, if you want to know the difference between FHA and USDA loans.
This will give you peace of mind, knowing your application is in capable hands.
Start by shopping around and getting to know different lenders. Find the lender that best matches your needs. This is the best way to pre-qualify with a lender.
If you want to check your pre-qualification for a USDA loan, get in touch with us today.
Frequently Asked Questions
How long does it take for USDA to approve loans?
The entire USDA loan application process may take 30 to 60 days. To avoid delays, ensure you have all the required documents ready. Keep in touch with your lender to address any issues quickly.
Why would a USDA loan get denied?
Common reasons include insufficient income, unacceptable credit, and lack of repayment ability. Too much debt can also impact your maximum loan amount. Applicants also get denied if they exceed the 115% household income limit. It can also be because they qualify for conventional loans.
Is it hard to get approved for USDA loan?
Not at all.
Applying for USDA loans is easier because you don’t need a downpayment or a high credit score. You do however need to meet the income eligibility requirements.
Get Faster Approval on Your USDA Home Loan
Applying for a USDA home loan is a significant financial decision. For first-time homebuyers, it can be challenging to figure out where to start or what to do next.
Knowing the step-by-step process of USDA loans takes out all the guesswork. You’re able to prepare at every step, saving time on mistakes that can delay your application.
Want to start your USDA loan application on the right path? Get in touch with us today for a complete eligibility check.
