Two Tips to Avoid Killing Your Client’s USDA Loan

April 17, 2017 By ,

USDA financing offers a fabulous opportunity for borrowers who want to minimize their down payment requirements. The program offers 100% financing, which means the borrower only needs to supply enough cash to cover closing costs and prepaid items. There is no minimum down payment required! But before you recommend this program to any potential buyers, there are two major pieces of information you should always keep in mind so you don’t set your client up for heartbreak or disaster and kill a client’s USDA Loan.

1. Only properties in USDA approved areas will qualify.

USDA loans are a way to revitalize rural areas, therefore urban properties and large cities will not be eligible. You can see a map showing USDA eligible areas here.

Be sure to counsel buyers so they know that no matter how much they may love a particular property. If it’s not in a USDA-eligible area, USDA financing will not be possible. The good news is that many midsized cities are considered acceptable and are not stereotypically “rural” at all. The moral of the story is to always check the USDA map so you can show houses with confidence. Empower borrowers to do the same if they are doing their own shopping!

2. Income restrictions apply, but not in the way you think.

The USDA loans allow lower-income buyers the opportunity for home ownership. This means the borrower has to earn under a certain amount to qualify. Their income cannot exceed limits established by the USDA.

These limits vary depending on geographical location and can be checked here.  USDA does not offer any flexibility with these income limitations. It’s important to have a thorough understanding of a client’s income sources.

Income calculations require an in-depth analysis of your client’s financial profile. Many times when a client tries to estimate what they believe their income is, the USDA guidelines interpret the numbers differently, counting significantly more or less income than the client anticipates. The only way to thoroughly assess whether the client meets the income requirements is to seek a pre-approval from a trusted source.

With a pre-approval for a USDA loan in hand, your clients can have peace of mind and shop with confidence.

If you have any questions about USDA home loans or need a pre-approval letter for a client, please don’t hesitate to contact PRM!

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