USDA Rural Development:  Direct Mortgage

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USDA Direct Loan  Buyer Eligibility

The USDA direct mortgage buyer eligibility guidelines encompass several areas.  We will cover the detailed guidelines so you can determine if you are likely to qualify or not.

A borrower must be income-eligible, demonstrate a credit history that indicates ability and willingness to repay a loan, and meet a variety of other program requirements. This page provides guidance for each of these areas.

  • Borrower Income, ... annual, adjusted, and repayment income.

  • Borrower Assets discusses Agency requirements for cash
    contributions to the purchase and methods for computing income from assets.

  • Credit History identifies indicators of acceptable and unacceptable credit

  • Other Eligibility Requirements addresses a variety of other requirements 
    applicants must meet to be eligible for the program.

Evaluating Income

Underwriters use income information to: 

  • (1) help determine whether an applicant is eligible for a loan; 

  • (2) calculate the applicant's ability to repay a loan; and 

  • (3) determine the amount of the loan and the amount of payment subsidy the household can obtain. 

When reviewing an applicant's repayment income, the underwriter must determine whether the
income is stable and dependable. The underwriter will generally need to look at two
years of history to determine the dependability of the income. In addition, the underwriter must determine that there is a reasonable expectation that the income will continue.   Use the menu on the left for detailed information.

Borrower Assets

Assets affect an applicant's ability to obtain a loan in 2 ways. First, applicants may be
required to use assets to make a down payment covering some of the costs of purchasing a home.
Second, many types of assets generate income that must be included in the calculations of annual
and repayment income. 

Types of Assets

Non-retirement assets including:

  • Savings accounts; the average 2-month balance of checking accounts; safe deposit boxes and home;

  • Stocks, bonds, Treasury bills, savings certificates, money market funds, and other investment accounts;

  • Equity in real property or other capital investments;

  • Revocable trust funds that are available to the household;

  • Lump-sum receipts, such as inheritances, capital gains, lottery winnings and settlement on insurance claims (including health and accident insurance, worker's compensation, and personal or property losses);

  • Assets held in foreign countries;

  • Personal property (such as jewelry, coin collection or antique cars) held as an investment; and

  • Cash value of life insurance policies.

Retirement assets including:

  • Amounts in voluntary retirement plans that can be withdrawn, such as individual retirement accounts (IRAs), 401(K) plans, and Keogh accounts; and

  • Amounts in other retirement and pension plans that can be withdrawn without retiring or terminating employment.

The following types of assets are not considered.

  • The value of necessary items of personal property, such as furniture, clothing, cars, wedding rings and other jewelry not held as an investment, and vehicles specially equipped for persons with disabilities;

  • Assets that are part of any business, trade, or farming operation in which any member of the household is actively engaged;

  • The value of an irrevocable trust fund, or the value of any trust over which no member of the household has control;

  • Term life insurance policies where there is no cash value;

  • Assets that are not effectively owned by, accessible to, and provide no income to the applicant;

  • Interests in American Indian trust land; and

  • For income calculations, any assets on hand that will be used to reduce the amount of loan.

Credit History 

Your credit history is critical for getting your loan approved.  Many people think because the Direct loan is  for people with low to very low income that credit doesn't matter.  It is a big deal.

How much open credit you have determines your repayment ability.  A simple formula determines your Debt to Income ratio.  Max for this loan is 28/41.  That means that your mortgage payment cannot be more than 28% of your total income.  All payments including the mortgage payment cannot exceed 41% of your income.  So, if you have very low income and you have a large car payment you won't be able to buy much of a house, if at all.

Your Credit history indicates your willingness to repay your debts.  If you have collects, judgments, charge offs, repossessions, and late payments it shows that paying your bills on time really is not a priority and/or you are not able to live on a budget.  You are living above your means.  You won't be able to make your mortgage payment on time.  This is not a bad credit loan.  Don't even bother to waste your time applying.

 
 
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