When you hear United States Department of Agriculture or USDA, you might think about cows, chickens, or farming. However, the USDA is much more than farming and food safety. They are involved in rural development across America. One way they achieve this is through offering USDA loans.
Getting a home loan through the USDA can be an excellent option for rural homebuyers in Texas. USDA home loans offer 100% financing and low interest rates. However, there are specific requirements that borrowers need to meet to qualify In this comprehensive guide, we’ll cover everything you need to know about USDA home loan requirements in Texas
Overview of USDA Home Loans
The United States Department of Agriculture (USDA) offers two main mortgage programs – Direct Loans and Guaranteed Loans. Both allow for 100% financing, meaning you can get a home loan without a down payment.
USDA Direct Loans are funded directly by the USDA. They are available to low-income borrowers who earn less than 80% of the area median income. USDA Direct Loans offer a fixed interest rate which is typically lower than market rates.
USDA Guaranteed Loans are issued by private lenders and backed by the USDA. They have more flexible income limits, up to 115% of the median income. Guaranteed loans offer variable market rate financing.
The main advantage of USDA home loans is that they require zero down payment and have flexible credit guidelines. The trade-off is that they can only be used for properties in designated rural areas.
USDA Income Limits in Texas
To qualify for a USDA home loan in Texas, your household income must fall below the income limits set by the USDA. The income limits vary by county and household size.
Here are some examples of the 2023 income limits in different Texas counties:
- Harris County (Houston area)
- 1-person household: $63,950
- 4-person household: $91,150
- Dallas County
- 1-person household: $59,280
- 4-person household: $84,520
- Bexar County (San Antonio area)
- 1-person household: $50,100
- 4-person household: $71,500
In most counties, the limit for a 4-person household is around $70,000-$90,000. Use the USDA Income and Property Eligibility tool to check the specifics for your county.
Rural Area Requirements
USDA home loans can only be used to purchase homes in designated rural areas. The property must be located:
- In an eligible rural area as defined by USDA maps
- In a community with a population below 35,000
- Not in an ineligible area around a bigger city
You can verify if a property qualifies by entering the address in the USDA Property Eligibility tool.
In Texas, eligible rural areas include smaller towns, communities around major metro areas, and certain suburban neighborhoods. Urban city centers like Dallas and Houston are not eligible.
First-Time Homebuyer Requirements
USDA does not have a first-time homebuyer requirement. You can qualify for a USDA home loan even if you’ve previously owned a home.
The requirements are focused on your income, assets, and credit – not necessarily first-time buyer status.
Minimum Credit Score Requirements
The USDA does not mandate a minimum credit score. Instead, they review your entire credit profile, including:
- Payment history
- Types of credit in use
- Age of accounts
- New credit inquiries
- Collection accounts
- Public records like judgments
As a general guideline, a credit score above 640 has the best chance of approval. But it’s possible to get a USDA loan with a score in the 580-640 range if you have strong compensating factors. Recent bankruptcies or foreclosures may be disqualifying.
Lenders will want to see a willingness and ability to manage debt responsibly. Past credit problems are OK if you have re-established positive payment patterns.
Debt-to-Income Ratio Requirements
Your total debt-to-income (DTI) ratio must be reasonable to get USDA approval. Typical DTI requirements are:
- Maximum 29% DTI for your mortgage payment + property taxes/insurance
- Maximum 41% DTI for all your monthly debts including credit cards, auto loans etc.
A lower DTI ratio helps strengthen your case if you have past credit issues. For example, a DTI around 35% may offset a lower credit score.
Cash Reserve Requirements
The USDA does not require a specific amount of cash reserves. However, lenders generally like to see reserves equivalent to 2-12 months of mortgage payments.
Reserves help protect against default if you face unexpected expenses or temporary hardship. Even a small savings buffer can help offset other weaknesses in your application.
Types of Homes Eligible for USDA Loans
You can use a USDA home loan to purchase:
- Single family homes
- Townhomes
- Condos
- Modular homes
- Manufactured homes (must be newly built after June 1976)
2-4 unit properties may also qualify if you live in one unit as your residence. The home must be modest, without any luxury amenities, and your budget should be reasonable for the property’s size.
Homebuyer Education Requirement
First-time homebuyers with a USDA loan are required to complete an approved homebuyer education course. This involves around 6-8 hours of instruction and counseling.
The training covers topics like budgeting, credit, shopping for a home, obtaining financing, and being a successful homeowner. Many nonprofits offer free classes both online and in-person.
Customizing the Home Before Closing
The USDA allows buyers to customize or repair the home after going under contract but before closing on the mortgage. Common options include:
- Painting interior walls
- Installing new flooring
- Landscaping the yard
- Adding fencing
- Making minor renovations
Your lender will coordinate the process. You’ll need to fund any custom work and factor it into your total transaction costs.
Applying for a USDA Home Loan in Texas
The first step is to get pre-approved by contacting a USDA approved lender. They will review your income, assets, and credit to issue a pre-approval letter.
You can then make offers on homes within your budget and location parameters. Once an offer is accepted, the lender will fully process your application and underwrite your loan.
Look for lenders familiar with USDA loans. Their expertise can help guide you through the program’s unique requirements.
The Bottom Line on USDA Loans in Texas
USDA home loans can be a great mortgage option, especially if you value low rates and need flexible credit or underwriting. Just be sure you qualify based on the income limits, rural location rules, and lender requirements. Pay attention to details like minimum reserves and homebuyer education courses.
While every situation is different, the benefits are worth exploring USDA loans as part of your Texas homebuying process. Connect with expert lenders to learn more about qualifying and choosing the right USDA loan program for your needs.
Types of USDA Loans Offered in Texas
- USDA Single Family Housing Guaranteed Loan Program: This is the most common type of USDA loan available to eligible low to moderate-income homebuyers in rural and some suburban areas. This program provides approved lenders with 30-year fixed-rate loans without down payment requirements. Borrowers must meet income and credit score requirements, and the property must be in an eligible area.
- USDA Home Improvement Loan and Grant Program: This program provides loans and grants to eligible homeowners in rural areas to make necessary home repairs, improvements, and upgrades.
- USDA Multi-Family Housing Programs: These programs aim to increase the supply of affordable rental housing in rural areas. They include various loan and grant options for developers and organizations interested in building, rehabilitating, or preserving affordable rental housing for low-income individuals and families.
- USDA Rural Repair and Rehabilitation Grants: These grants are available to very low-income homeowners in rural areas who are 62 or older. The funds can be used to make repairs and improvements to ensure the safety and livability of their homes.
One of the top misconceptions about buying your first home is you need a 20% down payment. You do not have to have 20% down to buy a house. In fact, the average down payment on a house is actually 13%. Moreover, a first-time homebuyer can put down as little as 3%.
How to Apply for a USDA Loan in Texas
Not all lenders are USDA-approved, like Texas Regional Bank lenders. Contact one of our USDA-approved lenders online.
Getting prequalified with a USDA-approved lender before you begin the formal application process is a good idea. This step will help you determine if you meet the basic eligibility requirements for a USDA loan, including income limits and credit score. The lender can also provide an estimate of the loan amount you may qualify for.
Pros and Cons of a USDA Loan | All You Need to Know About USDA Home Loans EXPLAINED
FAQ
What are the qualifications for a USDA loan in Texas?
What is the income limit for USDA loans in Texas 2024?
What disqualifies a home from the USDA financing quiz?
How long does it take the USDA to approve a loan?
Do you qualify for a USDA loan in Texas?
USDA stands for “United States Department of Agriculture.” As the name suggests, they’re specifically involved with financing housing for families in rural areas. See if your household income qualifies for a USDA loan here. Or, speak to an experienced Texas mortgage adviser to determine if you qualify for all aspects of a USDA loan.
What are the requirements for a USDA home loan?
The property must be in an eligible rural area as the USDA defines it, and borrowers must meet household income requirements that vary depending on location and household size. The USDA also offers the Single Family Housing Direct loan through the Section 502 Direct Loan Program.
What is a USDA loan from Bank of Texas?
Learn more about USDA Loans from Bank of Texas and apply today. What is a USDA loan? USDA loans are mortgages back by the U.S. Department of Agriculture as part of the USDA Rural Development Guaranteed Housing Loan Program.
How much income do you need to get a USDA loan?
The income limit for USDA home loans is based on your area’s median income. To be eligible for a USDA loan, you can’t exceed the median income by more than 15 percent. For example, if the median salary in your city is $65,000 per year, you could qualify for a USDA loan with a salary of $74,750 or less. Do USDA loans take longer to close?