USDA Home Loan Texas: How to Finance a Home in a Rural Area

The government created USDA loans to help low-to-moderate-income families become homeowners. Backed by the United States Department of Agriculture, this loan program offers 0% down payment, has low-interest rates, and doesn't often require private mortgage insurance. But although USDA mortgages have flexible borrower qualifications, you have to meet certain requirements to be eligible.

Interested in getting a Texas USDA loan? This article will show you the steps you need to know to qualify for the USDA Rural Development loan program.

Step 1: Choose a Property in an Area Eligible for USDA Programs

One of the most important requirements in a USDA loan is whether or not a property is located in an eligible rural area. USDA's definition of eligible rural areas is not as restrictive as it sounds. This is because a 'rural area' consists of a mix of:

• Expansive rural landscapes;
• Small towns with a population of less than 2,500; and
• Urban areas range in population size from 2,500 to 49,999 and are not classified as part of a larger metropolitan labor market.

You can check out our other blog to know which areas are eligible for a Texas USDA home loan.

Moreover, USDA loans can only be used to purchase a primary residence. You cannot use it to fund a second home, vacation house, or an investment property.

In addition to being a primary residence, the property must also meet the following criteria to be eligible for a USDA loan:

• Accessibility: The property must be reachable through a road, street, driveway, or any other suitable route, with no obstructions that may hinder access to the home.
• Functional heating, cooling, and electric systems: All home systems, including major appliances, must be installed, operational, and safely wired.
• Structural integrity: The foundation of the house should be free of significant cracks or moisture issues, with sufficient life expectancy to last the term of the loan, and beyond.
• Adequate roofing: The roof must have a minimum of two years' worth of life left, with no visible holes, leaks, or missing shingles allowing water penetration into the house.
• Access to water supply and plumbing: The plumbing, water supply, and waste removal systems must be functional and up-to-date.
• Functional doors and windows: All interior and exterior doors must be installed and functional, while windows must be in good condition, without cracks, leaks, or visible mold.

Step 2: Qualify for a USDA Loan Based on Your Income

The primary aim of USDA loans is to assist low-income borrowers in purchasing a home. To fulfill this objective, the USDA mandates that lenders verify if the applicant's household income doesn't exceed 115% of the median household income in their area.

As of 2023, the standard income limit for most counties in the United States is $103,500 for 1-4 member households and $136,600 for 5-8 member households. Income limits may vary depending on the location to accommodate the cost of living.

To determine income eligibility, the USDA measures the annual household income which includes the income of the applicant and all adult household members, regardless of whether they are on the loan.

Lenders use historical data, such as W2s and current pay stubs, to project household income for the next 12 months. They also take into account gross income including salary, overtime, tips, commission, bonuses, and other forms of compensation for services.
However, certain income categories are never counted towards the USDA loan income limit. This includes earned income from a minor, an adult full-time student over $480, and tax credit.

Step 3: Check for County Loan Limits in Texas

Effective in 2022, the USDA loan limit for most counties in Texas is $336,500. This doesn't mean that you'll receive all of this amount, however. The loan amount that you'll be approved for will still depend on your ability to repay it.

To know the specific loan amount for your county, you can refer to page 86 of the official USDA Area Loan Limit document.

Step 4: Check Your Credit Score

To qualify for a USDA home loan, most approved lenders require a minimum credit score of 640. Nevertheless, the USDA itself does not set a minimum credit score, so applicants with scores below 640 may still be eligible for a USDA-backed mortgage.

If your credit score is below 640, manual USDA underwriting will be necessary. However, you may be able to compensate for your credit score by having a low debt-to-income ratio, substantial savings, or other financial strengths that reduce your risk as a borrower.

Steps 5: Check for Other Requirements

Here are other key eligibility requirements that you must prepare for the USDA loan program.

• Citizenship: You must be a U.S. citizen, non-citizen national, or permanent resident alien.
• Debt-to-Income Ratio: Total monthly debt payments, including the proposed new mortgage payment, must be at least 43% or lower of the gross monthly income.
• Acreage limits: There are no standard acreage or lot limits, but the amount must be common for the area.
• Property types: Detached, attached, PUD (planned unit development), modular, condos, and manufactured homes are eligible for USDA home loans, while farms and income-producing properties are not.
• Seller contributions: The seller of the home cannot contribute more than 6% of the sales price.
• Gift funds: There is no limit to the amount of gift funds you can receive from family members to help with the purchase of your USDA loan property.
• Appraisal: To ensure that the home you want to purchase is appropriate for the loan amount and meets the USDA standard, a home appraisal by an independent third party is required.
• Guarantee Fees: USDA loan borrowers are required to pay an upfront guarantee fee of 1% and an annual fee of 0.35%, which is divided into 12 monthly payments.

Contact Ebenezer Mortgage Solutions to See if You Qualify

Interested in getting a Texas USDA home loan? Ebenezer Mortgage Solutions can help. Contact us today at (813) 284 - 4027 to get pre-approval or to see if you qualify!