What Are The Rules For USDA Rural Housing Loans?

USDA Rural Housing Loans, also known as USDA Rural Development loans or USDA loans, are designed to help individuals or families purchase homes in rural areas. These loans are offered by the United States Department of Agriculture (USDA) and have specific eligibility criteria and rules. Here are some of the key rules for USDA Rural Housing Loans:

• Location Eligibility:
  The property being financed must be located in a designated rural area as defined by the USDA. These areas are typically small towns, rural areas, or even some suburban areas. Borrowers can check the USDA website or consult with a USDA-approved lender to determine if a specific property is eligible.
• Income Limits:
  USDA loans have income limits based on the area median income (AMI) for the location of the property. The borrower's household income must not exceed these limits to qualify for the loan. The income limits vary depending on family size and location.
• Occupancy:
  The property financed with a USDA loan must be the borrower's primary residence. These loans are not intended for investment properties or vacation homes.
• Credit Requirements:
  While USDA loans generally have more flexible credit requirements compared to conventional loans, borrowers are still required to have a reasonable credit history. Lenders may have their own minimum credit score requirements, but typically a score of 640 or higher is required.
• Property Eligibility:
  In addition to location eligibility, the property itself must meet certain requirements. It must be modest in size, safe, and sanitary. The home must also meet certain energy efficiency standards.
• Appraisal:
  A property appraisal is required to determine its value and ensure it meets the USDA's property requirements.
• Mortgage Insurance:
  USDA loans require upfront and annual mortgage insurance premiums, similar to FHA loans. The upfront premium can be financed into the loan amount, while the annual premium is paid as part of the monthly mortgage payment.
• Debt-to-Income Ratio:
  Borrowers must have a reasonable debt-to-income (DTI) ratio, which compares the borrower's monthly debt payments to their gross monthly income. Generally, the DTI ratio should not exceed 41%, although some flexibility may be allowed in certain cases.
• Lender Approval:
  Borrowers must work with a USDA-approved lender to apply for and obtain a USDA loan. These lenders have experience with USDA loan requirements and processes.

It's essential for potential borrowers to consult with a USDA-approved lender to understand all the specific rules and requirements for USDA Rural Housing Loans, as they can vary based on factors such as location and individual financial circumstances.

What Are The Common Errors When Underwriting USDA Rural Housing Loans?

Underwriting USDA Rural Housing Loans involves careful scrutiny of borrower qualifications, property eligibility, and adherence to program guidelines. Common errors during underwriting can lead to loan denials or delays. Here are some common mistakes:

• Incomplete Documentation:
  Underwriters must ensure all required documents, such as income verification, asset statements, and property appraisals, are complete and accurate. Missing or incomplete documents can delay the underwriting process.
• Inaccurate Income Calculation:
  Calculating borrower income incorrectly can lead to overestimation or underestimation of their ability to repay the loan. This includes not properly considering all income sources, such as bonuses or self-employment income.
• Unacceptable Credit History:
  Underwriters must review the borrower's credit history to ensure they meet USDA's minimum credit requirements. Common issues include late payments, collections, judgments, or bankruptcies.
• Property Eligibility Issues:
  USDA loans are only available for properties located in eligible rural areas. Underwriters must verify the property's eligibility using USDA's maps and guidelines. Errors in determining property eligibility can result in loan denials.
• Inaccurate Appraisal:
  Appraisal reports must accurately reflect the property's market value and meet USDA's appraisal requirements. Underwriters should review the appraisal report carefully to identify any discrepancies or issues that may affect the loan approval.
• Debt-to-Income Ratio Exceeds Guidelines:
  USDA loans have strict debt-to-income (DTI) ratio requirements. Underwriters must calculate the borrower's DTI ratio accurately to ensure it meets USDA's guidelines. Common errors include omitting debts or miscalculating the borrower's income.
• Insufficient Reserves:
  Borrowers are typically required to have sufficient reserves to cover unexpected expenses or mortgage payments. Underwriters must verify that borrowers have the necessary reserves according to USDA guidelines.
• Failure to Verify Occupancy:
  USDA loans are intended for primary residences only. Underwriters must verify that the borrower intends to occupy the property as their primary residence. Failure to do so can result in loan denial.
• Inadequate Compensating Factors:
  If a borrower's application has weaknesses, such as a higher DTI ratio or lower credit score, underwriters may look for compensating factors to offset the risk. Common compensating factors include stable employment history, substantial assets, or a history of timely rental payments.
• Non-Compliance with USDA Guidelines:
  Underwriters must ensure that all aspects of the loan application comply with USDA guidelines. Failure to adhere to USDA's requirements can result in loan denials or buybacks.

To mitigate these errors, underwriters should undergo thorough training, stay updated on USDA guidelines, and carefully review all documentation during the underwriting process. Additionally, implementing quality control measures can help identify and correct errors before loans are approved.

What You'll Learn From This Course

Our "USDA Rural Housing Loan - How To Qualify, Process, And Underwrite" course is an in-depth, instructor-led online program that teaches the basic qualifying and processing procedures for the program.

It is designed to teach the fundamentals of the general processing procedures to new and seasoned mortgage processors and underwriters alike.

Course Outline

In this course you'll learn about income and credit qualifying and documentation requirements of the Rural Housing Program, navigating the HB-1-3555 Handbook, and more, including:

• Rural Development Income Eligibility
• Rural Development Property Eligibility
• Program Benefits
• USDA Costs: Guarantee & Annual Fee
• Credit & Debt Analysis
• Intro to GUS

Upon finishing the course you will receive a Certificate of Completion and skills required to be successful in the mortgage industry.

Anticipated Time To Complete

This online course will take approximately three hours to complete. You do not have to complete the course in one sitting - there are bookmarks in this course that allow you to stop and restart as needed.

Access Information

Upon enrollment, you'll receive an email from the course provider (CampusMortgage®) with links and passwords to access the course. You will have full access to the course for one full year.