Connecticut USDA Loans and How They Work

USDA loans are offered by—you guessed it—the USDA and they allow you to purchase, refinance, renovate, repair or even relocate a home. The program began in 1991 in an effort to boost homeownership in rural areas, and, even for city dwellers, its offer great incentive to relocate. Eligibility may be restricted to rural areas—“rural” being defined very loosely—but USDA loans are still great because they’re extremely accommodating of low-income consumers. Even if you do have trouble paying your mortgage, they’ll give you a break, with subsidies, assuming you meet the requirements. Unlike conventional mortgages, there’s no down payment required – the loan can even cover closing costs, if the seller doesn’t. You don’t have to have great credit, either: If your FICO score is low because you don’t have a recent credit history – rather than having a bad credit history – you may still qualify. “The number one obstacle to homeownership, for home buyers of all income
ranges, is down payment,” said Greg Cook, a loan consultant at Golden Empire Mortgage. “USDA provides
 an alternative. With a maximum loan amount of $417,000, USDA serves home
buyers across a pretty wide spectrum. ”The USDA is clearly extremely accommodating, although you do have to fit the bill to be approved for a loan.

Am I eligible for a USDA loan?

Before we get lost in the nitty-gritty, let’s get the basics out of the way: to be eligible for this loan, you must live in a small town—often rural but not necessarily—and have enough income to pay the mortgage—but not so much income that you’d do fine with another loan.

Even though this loan originally meant to boost rural populations, you cannot buy a farm with the USDA’s funds. Nor can you use the loan to buy a second home or for speculating purposes. Primary residences only.

Now, on to the specifics:

Small towns only: You need to apply to find out, but typically towns with a population of less than 20,000 are eligible. Eligible areas are also subject to change March 27, 2013.

•Debt to income: Lenders will take a look at your debt-to-income ratio, too. Your PITI (which stands for mortgage principal, interest, taxes and insurance) must be less than 29% of your monthly income. All additional monthly debt can be no more than 41% of your income.

•Credit score: A score of 640 or higher is desired, though “frequent” exceptions are made for those with thin files.

•Overall income: There are maximum income requirements that vary by state and county, and by family size. Typically, adjustments are made for disabilities, dependents and so forth.

•You must also be 18 or older, and be a US citizen, national or qualified alien.

Don’t be frightened by these figures. The USDA is willing to help even those borrowers who barely meet the requirements. If you are unable to obtain credit elsewhere, and a direct loan is your best bet, then the USDA may subsidize your payments, although you’ll have to pay back those subsidies eventually. These accommodations are not made, however, for people with abysmal credit histories. If that’s the case, and you’d still like to apply, those black marks on your history must be explained and justifiable.

When you do select a home, the USDA requires that it be “modest in size, design, and cost.” Those are awfully vague requirements—their best clarification is that this judgment of modesty is relative to your area—but it shouldn’t come as a surprise: as a loan program that helps a broad spectrum of homeowners, the USDA wouldn’t want to subsidize excess. They’d rather use those funds to help more families. It follows that luxurious home features are ineligible for USDA help.

“So if someone is purchasing a home with a pool, the value of the pool is deducted from the appraised value to get the maximum loan amount,” said Sue Pullen, the regional vice president and senior mortgage advisor at Fairway Independent Mortgage.

Should I get a USDA loan?

If a new job relocates you to a small town—and if the rest of your household will have opportunities around your new home, too—then you should consider a USDA loan.

This is especially true if you expect you’ll have an opportunity to advance your career and increase your earnings. The USDA loan could give you a break now, and it won’t overburden you with debt later.

However, you’re required to pay private mortgage insurance (PMI) for at least part of the loan’s lifetime. While the USDA subsidizes those payments, you can avoid PMI altogether if you put enough money down.

If you have any questions about USDA Loans and/or acquiring one – please contact Craig Thibeau at 860-334-1354 or at craig@northeast-mortgage.com

Craig Thibeau
Senior Loan Officer
North East Financial Middletown, CT
Ph 860-334-1354
NMLS 398576 Company NMLS 117273
craig@northeast-mortgage.com
www.northeast-mortgage.com