Buying a house is one of the biggest investments in anyone’s life, and of course, the most exciting. A house is not just a financial investment, but a huge step towards what we call “the American dream.” However, it is also a costly affair that many people struggle to afford.
The USDA loan program opens doors for people who wish to become homeowners, but do not qualify for traditional financing. This is great news for everyone. In this review, we will take a look at the USDA loans and how you can apply for one.
The process of securing these loans is pretty similar to any other loan procedure on the market. However, since this is a government guarantee, it has a few exceptions. The general application process involves applying for approval, and preapproval. Let’s take a look at these steps below.
Pre-qualify For A USDA Loan And Finding A Lender
This is the first step towards getting your loan. You must first find an approved USDA lender. There are practically hundreds of lenders who make USDA loans. Working with one that specializes in rural home programs can really help you as a potential home buyer. Now, once you choose one of the lenders, you then have to get pre-qualified. The process of pre-qualification is very easy and it provides you with an estimate of what you can afford if you are eligible for the program.
You should be ready to answer questions such as; how much you want to borrow, how much you make per month, and the total debt you have. Most lenders will request your permission to do a hard pull of your credit at this time.
Pre-approval is a more intense process than the pre-qualification stage, and it involves taking the actual situation of your finances into account instead of just simple estimates. In this step, the lender will need to verify specific information about your finances. Some of the most important documents they will require for the pre-approval process are W-2 forms and your tax returns, your photo ID, your bank statements, your pay stubs, and Social Security letters.
The lender will decide how much you can borrow by verifying the information on your credit report and determining your debt-to-income ratio. This shows how much of your monthly income goes towards expenses.
Finding A Home – USDA Approved
If you still haven’t found a home yet, then you should start looking for a real estate agent and begin searching for a home. An agent that has USDA loan experience will help navigate the housing market and find different homes that are eligible for USDA funding.
The USDA specifies the properties they accept under the qualified rural areas. The property should serve as your primary residence and meet all of your other conditions that are set by the USDA. After receiving the preapproved letter, and the knowledge of your eligibility for the loan, the agent will have no trouble finding your dream house.
Signing The Purchase Agreement
After you find your dream home, you must then work with the lender so you can make an offer. Start by negotiating with the lender to cover all other closing costs. Once you sign the purchase agreement, the lender will order your USDA loan for appraisal. Appraisals are required by the USDA to safeguard the homebuyer.
Underwriting And Processing
Once you sign the contract, the underwriter will review the information and examine the file to ensure the documentation and application are truthful and accurate. The underwriting process can take a little longer because it is a two-party system. Your lender underwrites the loan to ensure you meet all of the USDA requirements.
One of their most important requirements is that you should have a credit score of at least 640 for the application to go through. Once the underwriters are satisfied, you can then go-ahead to the final step of closing the loan.
After signing the USDA loan, you will then receive a clearance to close it. At the closing, you will be required to sign all of the necessary paperwork to finalize the loan and take complete ownership of your new home.
There’s nothing like owning a home; most people dream of that day. Now, while the process of securing a USDA loan is like other mortgage programs, the actual timeline is based on your finances and your credit score. The initial appraisal takes up at least a week to complete and if there are repairs needed, then a second appraisal may be required. This can end up delaying the entire process further. As such, it is best to start this process early.