USDA Loan Requirements for Home Buyers in Pennsylvania

Buying a home is an exciting milestone, but it can also be a daunting process, especially when navigating the various loan programs and their requirements. USDA home loans are a popular option, particularly in rural areas like Pennsylvania, because they require no down payment and have flexible credit requirements. However, there are several eligibility rules prospective borrowers need to be aware of. In this article, we’ll break down the key USDA loan requirements for home buyers in Pennsylvania.

Overview of USDA Loans

USDA home loans, also known as Section 502 loans, are backed by the U.S. Department of Agriculture. They help low-to-moderate income buyers in rural and suburban areas obtain mortgage financing. Some key features include:

• No Down Payment Required One of the biggest perks of USDA loans is you can finance 100% of the home purchase price, eliminating the need for a down payment

• Below Market Interest Rates USDA loans offer competitive interest rates, making them more affordable than conventional mortgages Rates are fixed for the life of the loan

• Low Mortgage Insurance: An upfront guarantee fee of 1% of the loan amount is charged, along with an annual fee of 0.35%. This is lower than FHA and conventional loans.

• Flexible Credit Guidelines: USDA has more relaxed credit standards than conventional mortgages, making approval possible with credit scores as low as 640.

• No Income Limits: There are no income limits to qualify, only eligibility requirements related to your home location.

Now let’s take a closer look at the specific USDA loan requirements for Pennsylvania residents

USDA Area Eligibility in Pennsylvania

One of the first requirements is your home must be located in a USDA-designated rural or suburban area. Thankfully, the majority of Pennsylvania is eligible.

You can easily check eligibility by entering the property address on the USDA Eligibility Site. Eligible areas include:

• Small rural communities with populations under 35,000
• Rural census blocks within an urban area
• Designated rural subdivisions on the outskirts of a bigger city

If you’re unsure, it’s best to verify eligibility before getting too far along in the home buying process.

Borrower Occupancy Requirements

USDA home loans require borrower occupancy. This means you must plan to move into the home as your primary residence within 60 days of closing and occupy the property for at least 12 months.

These occupancy rules apply:

• You cannot use the property as a vacation home or investment property.
• Co-borrowers on the loan must occupy the home. Non-occupying co-borrowers are not permitted.
• Military service members may be exempt from the 12 month occupancy requirement if deployment is likely.

Providing inaccurate occupancy information or moving out too soon after closing can trigger repayment of the loan subsidy received.

USDA Income Eligibility Guidelines

While there are no specific income limits to qualify for a USDA loan in Pennsylvania, your income does impact the type of financing you can receive. USDA offers two main loan types:

Guaranteed Loans

• No income requirements
• Must have qualifying credit score and debt-to-income ratio
• Lower annual insurance fee of 0.35%

Direct Loans

• Must have household income at or below applicable low-income limit
• Offer a subsidized interest rate and payment assistance
• Up to 33 year loan term

You can check if your income falls within direct loan limits using the Income Eligibility Guidelines on USDA’s website. Limits adjust annually and vary by county, household size, and income category:

• Very low-income: Below 50% of area median income
• Low-income: 50-80% of area median income

Minimum Credit Score Requirements

To qualify for a USDA loan in Pennsylvania, you’ll need a minimum credit score of 640. However, scores of at least 680 will get you the most favorable interest rates. Here are some credit requirements:

• Minimum 680 score: Best rates and easiest approval
• 640-679: May get approved with additional underwriting conditions
• Below 640: Unlikely to be approved

Keep in mind, a higher down payment can sometimes offset a lower credit score during the underwriting process.

Maximum Debt-to-Income Ratio

Your total monthly debt payments plus new mortgage payment must not exceed 41% of your gross monthly income. This is known as your debt-to-income (DTI) ratio.

• **Ideally:**Aim for 36% DTI or lower
• Maximum to Qualify: 41% DTI

The lower your DTI ratio, the easier getting approved will be. Paying down existing debts can help lower your DTI.

Homebuyer Education Requirement

All USDA borrowers in Pennsylvania and nationwide must complete an approved homebuyer education course prior to closing. This helps prepare you for the responsibilities of homeownership.

You can take an online or in-person class. Your lender will provide a list of approved agencies offering the required course. The fee is normally around $50-$100 per household.

Additional Requirements

Beyond the major requirements we just reviewed, here are some other USDA loan rules to keep in mind:

• Have a steady income history and employment history of at least 2 years
• Have an acceptable credit history with limited late payments
• Keep assets within USDA limits to prevent a down payment requirement
• Shop for real estate and mortgage brokers approved by USDA
• Select a property that passes the USDA appraisal and inspection requirements
• Pay an upfront guarantee fee of 1% of the loan amount
• Purchase flood insurance if required
• Sign Occupancy Agreement and Certification requiring you to personally occupy the home

Finding a USDA Lender in Pennsylvania

USDA home loans are offered by approved lenders across Pennsylvania. This includes banks, mortgage companies, and credit unions.

You can start your official loan application by contacting a USDA-approved lender. They will walk you through the documentation and verification process, submit your application package to underwriting, and help you close on your new home!

The USDA website provides a full list of approved lenders in Pennsylvania to choose from.

Buying a home is made easier with the affordable financing options USDA provides. Just be sure to assess all their loan requirements to ensure you qualify. This will put homeownership well within your reach!