The U.S. Department of Agriculture (USDA) offers nonconforming loans called the Rural Development Guaranteed Housing Loans. These are more commonly known as USDA loans, which helps buyers with low to moderate incomes purchase their own homes.
These competitively priced loans make purchasing a home more affordable for individuals and families living in certain rural areas of the U.S.
Similar to VA loans backed by the U.S. Department of Veterans Affairs, a government institution backs USDA loans: in this case, the USDA.
Buying a home is an exciting milestone, but it can also be a daunting process, especially when navigating eligibility requirements for mortgage programs. For rural homebuyers in Washington state, USDA home loans present an affordable path to homeownership, if you meet the requirements.
In this comprehensive guide, we’ll walk through everything you need to know about qualifying for and obtaining a USDA home loan in Washington from income limits to eligible locations. Whether you’re just starting your research or ready to submit an application use this article as your go-to reference for USDA lending in WA.
Overview of USDA Home Loans
Known formally as the Single Family Housing Direct Home Loan Program (or Section 502 loans) USDA home loans help low-to-moderate income buyers in rural areas finance home purchases with little to no downpayment required. These government-backed loans offer
- Fixed interest rates below conventional market rates
- 33 or 38 year repayment terms
- No requirement for private mortgage insurance
USDA loans are issued directly by the United States Department of Agriculture (USDA) Rural Development program. They help expand affordable housing opportunities in small towns and rural communities for creditworthy borrowers who may not qualify for conventional mortgages.
USDA Home Loan Requirements in Washington
While USDA loans offer flexible credit guidelines, you still must meet certain eligibility standards to qualify. Here are the key requirements:
Income Limits
Your household income must fall below the income limits set for your county in Washington. Income limits range from low-income to very low-income. You can check income limits in WA here.
Credit History
You must demonstrate a reasonable credit history, though guidelines are more flexible than conventional loans. Minimum credit score requirements vary from 580-640. Past bankruptcies or foreclosures don’t automatically disqualify you.
Debt-to-Income Ratio
Your total monthly debt payments, including the future mortgage payment, cannot exceed 41% of your gross monthly income. A ratio up to 50% may be allowed with certain compensating factors.
Cash Reserve Funds
While no downpayment is required, you must have adequate cash reserves equal to 2-3 months of mortgage payments. Gift funds can be counted toward reserves.
Homebuyer Education
First-time homebuyers must complete an approved homebuyer education course prior to closing on the USDA loan.
Property Requirements
The home you wish to purchase must be located in a USDA-designated rural area and fall below the maximum value limit for your county, which ranges from $300,000 to $625,000 in WA.
Additionally, properties must be modest in size, design, and cost for the area.
How to Apply for a USDA Home Loan in Washington
If you meet the above criteria, follow this step-by-step guide to navigate the application process:
1. Get Pre-Qualified
Work with a USDA-approved lender to get pre-qualified. This involves submitting financial details so they can give you an estimate of the loan amount and interest rate you may qualify for.
2. Complete the Application
Your lender will provide a Full 1003 Uniform Residential Loan Application to fill out. This collects financial, employment, and property information.
3. Gather Required Documentation
Compile all required income and identity documents for submission along with your application, such as:
- Pay stubs
- W-2s
- Federal tax returns
- Bank statements
- Photo ID
4. Choose an Eligible Property
Work with your real estate agent to choose a home in a designated rural area that fits within your county’s value limits. Your agent can also help coordinate the appraisal.
5. Complete Homebuyer Education
As a first-time buyer, complete a homebuyer education course online or in-person. Your lender can provide a list of approved organizations offering classes.
6. Await Loan Approval
The USDA will review your entire application package and issue a conditional commitment if approved.
7. Close on Your Home!
Once approved, work with your lender to finalize the closing process and prepare for move-in day!
USDA Loan Income Limits for Popular WA Counties
To give you an idea of income thresholds, here are the 2023 USDA income limits for some of Washington’s most populated counties:
King County
- 1-2 person household: $98,500
- 3+ person household: $113,300
Pierce County
- 1-2 person household: $84,900
- 3+ person household: $97,650
Snohomish County
- 1-2 person household: $98,500
- 3+ person household: $113,300
Spokane County
- 1-2 person household: $79,900
- 3+ person household: $92,150
Clark County
- 1-2 person household: $86,150
- 3+ person household: $99,300
Compare your household size and income to see if you may qualify based on the limits in your county.
USDA Home Loan Resources in Washington
Navigating the USDA loan process can feel overwhelming at times, but thankfully Washington state offers plenty of guidance and support. Here are some useful resources:
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USDA Rural Development WA Office – State office oversees USDA lending activities and has highly knowledgeable staff that can answer questions. Located in Olympia.
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USDA Direct Loan Application Packagers – Approved third-party packagers available to help assemble your application documents for a fee.
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RD Apply Online Portal – Web-based portal allows you to apply for USDA home loans completely electronically.
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Local Homeownership Centers – Many nonprofit centers offer USDA loan education, counseling, and application assistance, such as HomeSight and the Washington State Housing Finance Commission.
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Real Estate Agents – Experienced agents can explain the program benefits and guide you through rural properties in your county.
Don’t let the USDA home loan process intimidate you. With proper research and relying on useful resources in Washington, you can confidently navigate requirements and unlock an affordable path to homeownership. Visit the USDA Rural Development website to learn more and start your journey today!
How to Qualify for a USDA Loan
If you’re a lower-income resident in a rural or suburban area and cannot purchase a home through traditional financing, you may qualify for a USDA loan. Here are some of the qualifications for USDA loan recipients.
To qualify, a borrower’s adjusted gross income must not exceed 115% of their location’s median income. To find out whether your income is eligible, you can use the USDA’s income eligibility tool on its website.
You must also prove that you have steady income so that there’s no question regarding whether you’ll be able to make mortgage payments on time and without incident.
To further ensure you’ll be able to make payments, lenders will look at your debt-to-income (DTI) ratio. This is how much money you owe compared to how much you earn, viewed as a percentage. Experts recommend a DTI ratio of approximately 43% or lower.
Calculate your DTI ratio by adding up your total monthly bills, such as rent, alimony, student loans and credit card payments. Then, divide the total by your gross monthly income. The result is your DTI ratio. To calculate your ratio quickly, you can find DTI ratio calculators on several websites.
Most USDA loan candidates should have a credit score of 640 or higher, with no accounts in collections currently or in the recent past. Speak with a lender if your score is close but doesn’t meet the loan requirements.
According to the applicant eligibility packet on the USDA website, “Applicants must provide evidence acceptable to the Agency of their status as United States citizens, U.S. non-citizen nationals, or qualified aliens, as defined in Sec. 3555.10.”
Most USDA-approved homes are located in rural areas or areas close to suburbs. USDA-approved residences are rarely in urban or metropolitan areas. To find out whether the home you want to purchase is eligible for USDA financing, you can use the USDA’s property eligibility tool.
How USDA Loans Work
USDA loans and conventional loans are both mortgages that buyers get to help finance a home, but they have several major differences. Unlike conventional loans, nonconforming loans like USDA, FHA and VA loans are mortgages with government backing.
The USDA guarantees your mortgage to your lender. This ensures risk is low and allows lenders to offer lower-income buyers low interest rates and no down payment requirements. Lenders can choose to make a down payment, but it’s not required for a USDA loan.
Both loan types have closing costs, and lenders pay them back the same way: monthly installments with interest.
USDA loans have no available adjustable-rate mortgages, and they run on 15- and 30-year fixed-rate schedules.
Pros and Cons of a USDA Loan | All You Need to Know About USDA Home Loans EXPLAINED
FAQ
What is the income limit for an USDA loan in Washington state?
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