USDA Loan – 103.5% Financing
I’m happy to introduce you to a product that even up until a couple of days ago I thought was only for farmers and ranchers. I was wrong. It’s the USDA Loan.
I’m going to start off with a disclaimer – I’m not a loan officer and there are more details than I’m able to give you in this short amount of time, this is just a quick overview. Contact your lender for USDA Loan program specifics. If you don’t have a lender, or your lender doesn’t participate in the USDA Loan program, I’ll give you Gina Spearman’s contact information at the end and she can help you with the USDA Loans finer details.
This USDA loan actually allows you to finance 103.5% of the purchase price of a qualifying property.
USDA Loan Income Limits
First off, the USDA loan has are income limits. I’m going to use theMarietta area limits (because I couldn’t find Cumming’s on the chart), and assume a 5 person household. The maximum annual adjusted gross income in this case is $62,050.
At the end of the post I’ll give you the web address to check for income limits in your area. It’s not an easy system to use, so if you can’t find your area Gina Spearman with Academy Mortgage has access to more accurate and easier to use information and she can help you with that.
Front and Back-End Ratios of the USDA Loan
Okay, the USDA loan is limited to a front-end ratio of 29% and a back-end ratio of 41%.
To calculate your front-end ratio from the USDA loan, take your annual adjusted gross income and divide by 12 for your monthly income. Multiply that amount by 29% and that is how much you can spend on your total monthly mortgage payment, which includes principal, interest, taxes, and insurance.
Annual Household Income is: $62,050
Divided by 12 / 12
Monthly Income: $5,171
Multiply by F.E. ratio * .29
Monthly total pmt $1,499.54
That’s a pretty nice number, because if you figure taxes at $125 per month and insurance about $85 per month, that leaves you with a principal and interest of $1,289.54. If I used 4.75% as the interest rate, that means you could purchase a USDA loan qualifying home of just under $250,000 (Don’t quote me on the taxes, insurance, and interest rates – I made these up as an example and there are many factors that impact these numbers)
To calculate your back end ratio for the USDA loan, as calculated above, your monthly income is $5,171
- Car payments $300
- Credit Card Payments $175
- Mortgage Payment $1499
- Total Debt $1,974
Divide 1,974 by 5,171 (monthly income)
The answer is your USDA loan back-end ratio. In this case 38.2%
No Mortage Insurance – Thank You USDA Loan!
One other great feature of the USDA loan is that there is no Mortgage Insurance, which you usually have on loans where you put down less than 20%, so the USDA loan will really help to keep your payments low.
Credit Score Requirement
You have to have at least a 640 credit score to qualify for a USDA loan. Again, you can contact Gina and she can help you determine your credit score. If it’s lower than 640, she has a program that analyzes your credit and will tell you step by step what to do to increase your scores.
If you have a property in mind and you would like to check to see if it is on the USDA loan map, you can go to www.rurdev.usda.gov/ and enter the property address to ensure it’s in an eligible USDA Loan location.