Purchasing a home is a pretty big deal for most people. This is certainly true for first time home buyers, many who use the 100% USDA for financing. Below we will discuss some of the USDA loan processing steps and what you can expect. USDA is a great choice for first time buyers since pretty much all of central south FL (Immokalee, La Belle, Moore Haven, Clewiston, Pahokee, Arcadia, Okeechobee) is eligible for the program!
USDA Rural Housing Loan Pre Qualification:
The USDA loan application starts the entire loan process. Once a lender has gathered information about a borrower’s income and debts, a determination can be made as to how much the borrower can pay for a house. Since different loan programs can cause different valuations a borrower should get pre-qualified for each loan type the borrower may qualify for. In attempting to approve homebuyers for the type and amount of mortgage they want, lenders look at two key factors. First, the borrower’s ability to repay the loan and, second, the borrower’s willingness to repay the loan.
Ability to repay the mortgage is verified by your current employment and total income. Generally speaking, mortgage companies prefer for you to have been employed at the same place for at least 2 years, with no sizable gaps in employment history. The borrower’s willingness to repay the mortgage is determined by examining how the property will be used. For instance, will you be living there or just renting it out? Since USDA only permits home purchases for primary homes (owner occupied homes) the home will be obviously occupied.
USDA Mortgage Programs and Rates:
To properly analyze a mortgage program, the borrower needs to think about how long he plans to keep the loan. If you plan to sell the house in a few years, an adjustable or balloon loan may make more sense. If you plan to keep the house for a longer period, a fixed loan may be more suitable. USDA loan are currently only available in a secure 30 year fix term. However, FHA loans do still offer adjustable rate terms. With so many programs from which to choose, each with different rates, points and fees, shopping for a loan can be time consuming and frustrating. An experienced mortgage professional can help clear the air and recommend the most suitable mortgage program based on your needs and goals.
USDA Mortgage Credit Reports:
Most people applying for a home mortgage don’t need to worry about the effects of their credit history during the mortgage process. However, you can be better prepared if you get a copy of your Credit Report before you apply for your mortgage. That way, you can take steps to correct any negatives before making your application.
A Credit Profile refers to a consumer credit file, which is made up of various consumer credit reporting agencies. It is a picture of how you paid back the companies you have borrowed money from, or how you have met other financial obligations. There are five categories of information on a credit profile:
- Identifying Information
- Employment Information
- Credit Information
- Public Record Information
- Credit Inquiries
NOT included on your credit profile is race, religion, health, driving record, criminal record, political preference, or income. If you have had credit problems, be prepared to discuss them honestly with a mortgage professional who will assist you in writing your Letter of Explanation or “LOE” A loan officer knows there can be good reasons for credit problems and financial difficulties. Maybe you were laid off, hurt, etc. If you had problems that have been corrected (reestablishment of credit), and your payments have been on time for a year or more, your credit may be considered satisfactory.
The mortgage industry tends to create its own language, and credit rating is no different. Credit scoring is a statistical method of assessing the credit risk of a mortgage application. The score looks at the following items: past delinquencies, derogatory payment behavior, current debt levels, length of credit history, types of credit and number of recent inquires in the last 90 days. The most common score (now the most common terminology for credit scoring) is called the FICO score. This score was developed by Fair, Isaac & Company, Inc. for the three main credit Bureaus; Equifax (Beacon), Experian (formerly TRW), and Empirica (TransUnion).
FICO scores are simply repository scores meaning they ONLY consider the information contained in a person’s credit file. They DO NOT consider a person’s income, savings or down payment amount. Credit scores are based on five factors: 35% of the score is based on payment history, 30% on the amount owed, 15% on how long you have had credit, 10% percent on new credit being sought, and 10% on the types of credit you have. The scores are useful in directing applications to specific loan programs and to set levels of underwriting such as Streamline, Traditional or Second Review.
The following items are some of the ways that you can improve your credit score, thus improving your interest rate:
- Pay your bills on time.
- Keep Balances low on credit cards, under 50% of the limit.
- Check that your credit report information once a year to insure it’s accurate.
- Be conservative in applying for credit and make sure that your credit is only checked when necessary.
A loan applicant with a score of 720+ credit score is considered an A+ borrower. USDA loan borrowers in this category qualify for the lowest interest rates and their loan can close in a couple of days. A score below 680 but above 620 may indicate underwriters will take a closer look in determining potential risk. Additional processing documentation may be required before final approval.
Borrowers with credit scores below 600 are normally not eligible for USDA mortgage financing. Most lenders will have in house requirements on minimum credit score requirements. 600 is the min requirement for most mortgage companies when offering USDA, FHA or VA home loans. All things being equal, when you have less than perfect credit, all of the other aspects of the loan need to be stellar. Income stability, assets- savings, debt to income ratios play a larger role in the approval decision. Keep in mind a sufficient credit score does not guarantee loan approval.
Every lender has additional requirements (overlays) in regards to any borrower that has a past Bankruptcy, Foreclosure, Short Sale. Credit patterns, such as a high number of recent inquiries or more than a few outstanding loans, may signal a problem. Since an indication of a ‘willingness to pay’ is important, several late payments in the same time period is better than random lates.
USDA Loan Underwriting:
Once the processor has put together a complete package with all verifications and documentation, the file is sent to the underwriter. The underwriter is responsible for determining whether the package is deemed an acceptable loan. If more information is needed, the loan is put into ‘suspense’ and the borrower is contacted to supply more information and/or documentation. If the loan is acceptable as submitted, the loan is put into an ‘approved’ status and then clear any outstanding loan conditions.
USDA Loan Closing:
Once the loan is approved, the file is transferred to the closing and funding department. The funding department notifies the broker and closing attorney of the approval and verifies broker and closing fees. The closing attorney then schedules a time for the borrower to sign the loan documentation.
At the closing the borrower should:
- Bring a certified cashier’s check for your down payment and closing costs if required. Personal checks are normally not accepted by closing agents.
- Review the final loan documents. Make sure that the interest rate and loan terms are what you agreed upon. Also, verify that the names and address on the loan documents are accurate.
- Sign the loan documents.
- Bring identification and proof of insurance.
After the documents are signed, the closing attorney returns the documents to the lender who examines them and assuming everything is in order, arranges for the funding of the loan.
Please click on the link to read all the most frequently asked USDA Rural Development questions. Buyers that have questions about applying for the USDA can submit the information request form on this page. Serving homebuyers of rural central south Florida – Immokalee, La Belle, Moore Haven, Clewiston, Pahokee, Buckhead Ridge, Arcadia, Okeechobee FL, Avon Park, Lake Placid, Sebring.
2020 USDA Loan Financing, Purchase Process