Buying a home is an exciting milestone but it can also be daunting, especially when trying to navigate the various mortgage options and loan requirements. For eligible borrowers in rural Utah USDA home loans present an affordable path to homeownership. These government-backed loans offer 100% financing and flexible credit guidelines. But what exactly are the USDA loan requirements in Utah?
In this comprehensive guide, we’ll cover everything you need to know about qualifying for and obtaining a USDA mortgage in Utah, including:
- Overview of USDA Loans
- Eligibility Requirements
- Location
- Income Limits
- Credit Requirements
- Debt-to-Income Ratio
- Down Payment
- Home Requirements
- Application Process
- Documents Needed
- Closing Costs
- Pros and Cons of USDA Loans
Overview of USDA Loans
USDA stands for the United States Department of Agriculture. The USDA Single Family Housing Direct Home Loan program, also called Section 502, provides low-interest mortgage loans to low- and moderate-income borrowers in eligible rural areas.
Some key features of USDA loans include:
- 100% financing – no down payment required
- Low fixed interest rates
- Flexible credit guidelines
- No maximum income limits
- Loan limits up to $647,200 (high cost areas)
Funds can be used for new construction, existing homes, or repairs to an existing home. The loans are administered through local offices and approved lenders.
Eligibility Requirements
To qualify for a USDA home loan in Utah there are certain requirements related to your location income, credit, debt levels, and down payment funds.
Location
The home you wish to purchase must be located in a rural area designated as eligible by the USDA. You can verify if a property falls within an eligible area by using the USDA Eligibility Site. Generally, rural towns and communities with populations under 20,000 are eligible.
In Utah, common eligible areas include towns such as Price, Blanding, Beaver, and Tremonton. The suburbs around cities like Salt Lake City, Provo, and St. George are usually not eligible.
Income Limits
To qualify for a USDA loan, your household income must be below the income limit set for your county and household size. Here are the current income limits for Utah. For example, the income limit for a family of 4 in Salt Lake County is $98,600.
Unlike conventional loans, there is no first-time homebuyer requirement for USDA loans. You also may exceed the income limits if you can show limited financing options in your area.
Credit Requirements
USDA loans are available to borrowers with credit scores as low as 640. While minimum scores vary by lender, many approve applicants with scores in the high 500s or 600s.
You can have previous foreclosures, bankruptcies, collections, and high debt levels and still qualify. However, expect to provide documentation explaining past credit issues.
Debt-to-Income Ratio
Your total debt-to-income ratio (DTI) must be below 41% to qualify for a USDA loan. Your DTI compares your total monthly debt payments to your gross monthly income. For example, if you have a $2,000 monthly mortgage payment and $500 in other monthly debt payments, your $2,500 total monthly debt divided by a $6,000 monthly income equals a 41.67% DTI.
While 41% is the maximum DTI, many lenders prefer DTIs below 36% for USDA borrowers with weaker credit profiles. You may need to pay down debts to decrease your DTI to qualify.
Down Payment
A major advantage of USDA loans is that no down payment is required. You can finance 100% of the home’s purchase price plus eligible closing costs. However, you can make a down payment if you choose.
Home Requirements
The home you purchase or construct must meet certain standards to be eligible for USDA financing:
- Single family home, duplex, condominium, or manufactured home
- Owner-occupied as your full-time residence
- Modest in size, design, and cost based on area median prices
- Built on a permanent foundation if a manufactured home
- Must pass an appraisal and inspection for soundness
Application Process
To get started, you’ll need to complete a mortgage pre-approval and submit a USDA loan application through an approved lender. As part of the application process, you’ll provide documents verifying your income, assets, credit history, and eligibility.
Here are some key steps in the USDA mortgage process in Utah:
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Get pre-qualified – Work with a USDA approved lender to determine if you meet eligibility requirements. They will assess your credit, income, debts, and down payment funds.
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Find a home – Once pre-qualified, you can start searching for a home in an eligible area that meets USDA requirements.
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Apply for financing – Your lender will guide you through completing the mortgage application, collecting required documents, and paying for appraisal fees.
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Home appraisal – An appraiser will ensure the property is worth the purchase price and meets minimum property standards.
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Loan approval – The USDA will review your eligibility and interest rate and approve or deny your loan application.
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Closing – During closing, you’ll sign final loan paperwork and receive the keys once funds have transferred.
Documents Needed
Be prepared to provide the following documents when applying for a USDA home loan in Utah:
- Loan application and affidavits
- Copy of valid ID
- Tax returns and W-2s for last 2 years
- Pay stubs covering last 30 days
- Bank statements for last 2 months
- Debt and credit information
- Gift letters for any gifted funds
- Divorce decrees and child support docs, if applicable
Closing Costs
You can finance most allowable closing costs into your USDA loan amount. This includes fees such as origination, title services, recording, and escrow setup costs. You cannot finance prepaid costs like insurance and property taxes.
Expect to pay for upfront costs like the home inspection and appraisal yourself, which can range from $400-$700 altogether. Your total closing costs generally run between 3-6% of the mortgage loan.
Pros and Cons of USDA Loans
Some top advantages of USDA loans include:
Pros
- 100% financing available
- Competitive interest rates
- Flexible credit and income options
- Low mortgage insurance
- No first-time homebuyer requirement
- Financing available for repairs
Potential Cons
- Limited to rural locations
- More stringent home eligibility
- Potentially higher upfront fees
- Potential for higher monthly costs than FHA loans
- Must meet income eligibility
The cons of USDA loans are minimal compared to the major perks like no down payment and flexible guidelines. A USDA mortgage can be a great way for lower-income borrowers to break into homeownership.
Hopefully this guide provides a clear overview of the main USDA mortgage requirements in Utah. Connect with a USDA approved lender to evaluate your eligibility and get started on the path to an affordable home loan. With creative packaging of government loan programs, homeownership is possible even on limited incomes and with less-than-perfect credit.
USDA Home Loan Property Requirements
- Must be a single-family residence, an approved condominium (by Fannie Mae, Freddie Mac, HUD or VA) or a PUD (Planned Unit Development) – a townhome;
- The property must be non-farm, non-income providing
- Maximum acreage is 40 acres
- The value of the site should not exceed 30% of the total value of the property (exceptions may apply if excessive land value is customary as evidenced by the appraisal)
- The property must be in “marketable” condition at the time of closing, meaning it can be sold in its current condition if necessary.
Because this is a loan program designed to help low to moderate income families, you cannot own any other homes at the time of the USDA loan closing. If you do own other property, it has to be sold prior to, or concurrently with your USDA loan closing.
An exception can be granted if you are relocating, and your other home is either:
- not in the same commuting area (at least 50 miles distance)
- functionally inadequate (USDA regards a mobile home not on a permanent foundation as functionally inadequate
Utah USDA Rural Loan
USDA stands for United States Department of Agriculture. The Rural Housing Service (RHS) is a department within USDA that offers the Guaranteed Rural Housing Loan Program – most people know it as the USDA Loan.
The USDA loan program is designed to assist low and moderate income families in getting affordable mortgages in eligible rural areas. To access the USDA loan eligibility map, click here.
While I only originate mortgage loans in Utah, these USDA loan program guidelines will apply in all states, with the expected variations in income limits.
There are a number of restrictions associated with USDA Rural loans, but don’t let that deter you from purchasing an eligible property. If you don’t mind living further from the busy city life, USDA loans rank number two in my book – right after the VA military loans. What’s there not to like?
- 100% financing, no down payment required
- closing costs can generally be covered with a slightly higher interest rate, or via seller concessions
- lower interest rates specific to government loans
- no mortgage insurance, just a very low annual fee
- more house for your dollar, due to the rural location requirement (and more time spent NOT IN TRAFFIC!)
Please note that while USDA technically allows construction loans, lenders will not do a construction loan with less than a 20% down payment.
You can try to find a builder that will carry the construction loan for you, and allow you to do the permanent financing as a USDA loan once the home is completed (the process is started about 30 days before the estimated completion).
Odds are, a builder will be unlikely to take the risk of building a custom home for a client with “no skin in the game”, and no ability to cover a low appraisal. Custom construction also takes month, time in which you your circumstances could change, making you ineligible for the loan.
Just like Utah FHA loans have an Up Front Mortgage Insurance fee, and an Annual Mortgage Insurance fee, the Utah USDA loan has a Guarantee Fee, and an Annual Guarantee Fee.
The Guarantee Fee amount is currently at 1%
The Annual Guarantee Fee amount is currently at 0.35%
Example: On a $200,000 loan amount with 100% financing, your upfront/one-time Guarantee Fee would be $2,000; your annual guarantee fee would be $700 – which translates into $58.33/month.
Not all real estate agents know the details on the USDA loan program. If you’re in Utah, but don’t yet have a real estate agent, ask me for a recommendation. I make sure the ones I work with are well educated on this program.
How do I get a USDA Loan in Utah and What is the USDA Loan in Utah
FAQ
What is the income limit for a USDA loan in Utah?
How high does your credit score need to be for a USDA loan?
What are the pros and cons of a USDA loan?
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Pros
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Cons
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No down payment
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Income limits
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Competitive interest rates
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Property restrictions
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Relaxed credit requirements
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Occupancy requirements
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No PMI requirement
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USDA program fees
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What is a rural housing site loan in Utah?
This program provides two types of loans to purchase and develop housing sites for low- and moderate-income families – Section 523 and Section 524. Rural Housing Site Loans in Utah | Rural Development Skip to main content An official website of the United States government Here’s how you know Here’s how you know
What makes a home eligible for USDA loan?
Eligible homes are in a rural census tract or division, as the U.S. Census Bureau defines. Not within a half-mile radius of an airport with 2,500 passengers or more per year All non-rural homes, known as urban homes, are ineligible for USDA lending. Homes that fall in USDA mortgage zones must also meet three other criteria to be USDA-eligible.
How big should a home be for a USDA loan?
While the USDA does not enforce a maximum square footage requirement or a loan size limit, USDA homes should be modest with only limited excessive features. Homes that are relatively large or expensive for the area are typically not eligible for USDA loans.
What is the agriculture loans section?
The Agriculture Loans Section of the Utah Department of Agriculture and Food is involved in four agriculture and rural loan programs: