The United States Department of Agriculture (USDA) offers home loans to eligible borrowers in rural areas of Virginia. These loans have several advantages like no down payment and flexible credit requirements. However, there are specific requirements borrowers must meet to qualify. This article provides a complete guide to USDA loan requirements in Virginia.
Overview of USDA Loans
The USDA Single Family Housing Direct Home Loan Program also known as Section 502 loans helps low- and very low-income borrowers purchase homes in rural areas. The program provides subsidized financing and payment assistance to help borrowers afford mortgage payments.
Some key benefits of USDA loans include:
- No down payment required
- Low fixed interest rates
- 33 or 38 year loan terms
- Can finance closing costs
- More flexible credit requirements
USDA loans are only available for primary residences in eligible rural locations, The loans have income limits based on the median income of the area,
Rural Location Requirements
USDA loans can only be used to purchase homes in rural areas The home must be in an area designated as rural by the USDA rural development program
Some parts of Virginia like Richmond and Norfolk are not eligible. However, many suburban and small town locations can still qualify even if they are near urban centers.
Borrowers can use the USDA Eligibility Site to check if a specific address is in an eligible area. Generally, locations with under 10,000 population are likely to qualify. The USDA considers commuting distance from urban areas and population density in determining rural eligibility.
Some factors that help an area qualify as rural include:
- Population under 10,000
- Not part of an urbanized area
- Has rural characteristics and feel
Areas right outside cities like Virginia Beach and Fairfax may meet the rural criteria due to low density and distance from the urban core.
Income Limits
Borrowers must have income below a limit set by the USDA for their area to qualify for the program. The income limits factor in the number of people who will live in the home.
As an example, here are the income limits for some Virginia counties in 2023 for a family of 4:
- Albemarle County – $97,600
- Augusta County – $83,300
- Fairfax County – $130,000
- Loudoun County – $130,000
- Roanoke County – $88,800
In general, the limit is 115% of the median income for the county. Larger households can qualify at higher incomes up to around $140,000 in expensive areas.
All income from adult household members is included when determining if the borrowers are below the limit.
Credit Score Requirements
The USDA does not set a minimum credit score requirement for loans. Instead, each lender sets their own minimum credit score needed to qualify.
Typical minimum credit scores range from 580 to 640 for USDA loans. Borrowers with lower credit scores may still be able to qualify with additional conditions. Factors like on-time rent payments can help compensate for credit issues.
Here are some common credit requirements lenders have for USDA loans:
- Minimum credit score of 580-640
- No recent foreclosures or bankruptcies
- At least 3 trade lines open for 1 year
- Housing payment history considered
Meeting the minimum credit score is important. But borrowers shouldn’t assume they won’t qualify if they lack sufficient credit history or have minor credit issues.
Debt-to-Income Ratios
To receive a USDA home loan, borrowers must have acceptable debt-to-income (DTI) ratios. DTI measures how much of monthly income is tied up in debt payments.
Two DTI ratios are calculated – the front-end and back-end ratios:
Front-End DTI: Includes the new mortgage payment and cannot exceed 29% of gross monthly income.
Back-End DTI: Includes all debts like car loans and credit cards. Cannot exceed 41% of gross monthly income.
For example, if monthly income is $5,000:
- Front-end DTI: Mortgage payment ≤ $1,450
- Back-end DTI: Total debts ≤ $2,050
Higher credit scores and other positive factors can sometimes allow exceeding these ratios. But they provide a general guideline for qualifying. Keeping other debts low is important to meeting the backend DTI limit.
Home Eligibility Requirements
In addition to location and borrower requirements, the home itself must meet certain criteria with a USDA loan:
- Primary residence only, no second homes or investment properties
- Single-family homes, townhomes, and condos allowed
- Maximum of 2,000 square feet without prior approval
- Cannot be used for income-producing activities
- No more than 10 acres of land
Manufactured and modular homes are eligible if they meet USDA requirements. The home must be on a permanent foundation and classified as real property.
All homes require an appraisal confirming the value and that the home meets minimum property standards. The appraisal verifies the property is decent, safe, sanitary and structurally sound.
How to Apply for a USDA Loan in Virginia
Borrowers apply for a USDA home loan through approved lenders who participate in the program. Here are the main steps to complete a USDA loan application:
- Get pre-qualified – Work with a lender to confirm you meet the basic requirements
- Choose a home in an eligible area
- Complete loan application – Provide documents verifying income, assets, and identity
- Get home appraised – USDA reviews the appraisal to ensure eligibility
- Close on loan – Final underwriting and approval allows closing
The process takes 30-60 days in most cases. Working with an approved USDA lender is essential to navigate the application and documentation requirements.
Finding a USDA Loan Lender
USDA approved lenders can be found across Virginia. Begin your search online to find local lenders familiar with USDA home loans.
Some lenders to consider include:
- Fairway Independent Mortgage Corporation
- American Pacific Mortgage
- The Federal Savings Bank
- Union Home Mortgage
Get pre-qualified and compare options from multiple lenders. Consider lenders who offer full-service support throughout the home buying process.
The Benefits of USDA Home Loans
For eligible borrowers, USDA loans provide affordable financing to achieve homeownership. Key benefits include:
- Purchase with no down payment
- Below market interest rates
- Flexible credit requirements
- Loan terms up to 38 years
- Rural location options
By meeting all the requirements, you can take advantage of a USDA loan to buy a home with no money down and reduced mortgage payments.
Frequency of Entities
usda loan – 24
virginia – 19
income – 8
rural – 7
credit – 6
home – 6
requirements – 5
borrowers – 5
loans – 5
eligible – 4
qualify – 4
lenders – 3
areas – 3
location – 3
limits – 3
program – 2
Monthly Mortgage Insurance Premium (MIP) Requirements
- USDA requires a monthly mortgage insurance premium with an annual factorial of .35%
- USDA primarily often won’t allow applicants to own other properties
- Exceptions include when the other property owned is:
- Not owned in the local commuting area as the new property; or
- Not structurally sound and/or functionally adequate
- Manufactured home not on a permanent foundation
- 29/41% debt-to-income (DTI) – Target
- 33.99/45.99% debt-to-income (DTI) – With compensating factors such as:
- 680 or higher credit score
- No or low “payment shock” – less than a 100% increase in proposed mortgage payment Vs. current rental housing expenses
- Fiscally sound use of credit
- Ability to accumulate savings
- Stable employment history with 2 or more in current position or continuous employment history with no job gaps
- Cash reserves available for use after settlement
- Career advancement as indicated by job training or additional education in the applicants profession
- Trailing spouse income – as a result of a job transfer, the house is being purchased, prior to the secondary wage-earner obtaining employment. If the secondary wage-earner has an established history of employment and has a reasonable chance to obtain new employment in the area
- Low total debt load
- 6% of sales price towards closing costs, prepaids, discount points, buydown fees, and upfront Commitment Fee
- Purchase
- Rate/Term Refinance on existing USDA loan
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- U.S. citizens
- Permanent resident aliens
- First time homebuyers allowed
- Non-occupant co-borrowers NOT allowed
- USDA charges a 1% Commitment Fee
- Commitment Fee can be financed into the loan
- Example:
- Purchase price – $100,000
- Base Loan amount – $100,000
- Commitment Fee – $1,010 ($100,000 [purchase price] /.99 – 100,000)
- Maximum financed loan amount = $101,010
- No down payment is required
- If borrower has adequate liquid assets (i.e. 20% of the property purchase price) to obtain conventional financing the borrower may be ineligible for the USDA Rural Development Loan
- Must be in an eligible USDA Rural Development Location
- Owner-occupied properties
- Existing attached & detached single family residences
- New construction with permanent financing only
- PUD’s (i.e. Townhomes)
- Condo-units. HUD, VA, FNMA or FHLMC approved project
- Log cabin homes, provided Appraisal Report lists other comparable log cabin homes that have recently sold in the area
- Co-ops
- Mixed-use
- Condotels
- Manufactured homes
- Single Family Homes where the land value excess 30% of the appraised value and can be sub-dividend.
- Minimum loan amount: $80,000 standard purchase/refinance transaction. $120,000 for construction and renovation transactions. (Note, this is an internal lender guideline. The USDA Loan program has no minimum loan amount guideline. If you are purchasing a house with a price less than $80,000 contact other lenders to determine if they will service your mortgage requirements.)
- Maximum loan amount: No limit. The maximum loan amount that a borrower can qualify for will be determined by the borrowers debt to income ratio and Guaranteed Underwriting System’s findings
- County specific. Reference the USDA website for adjusted household income limits
- Maximum loan-to-value is 101.01%
- Middle Credit Score – 640 for each applicant for GUS automated underwritting approval
- Middle Credit Score – 580 for each applicant for manual underwritting approval and a documentable rent history within the last 12 months
5 Things You Need to Know About USDA loans
FAQ
How to qualify for a USDA loan in Virginia?
What is the difference between FHA VA and USDA loans?
What is the income limit for the USDA loan in West Virginia?
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 are the requirements for a USDA home loan?
To get a USDA home loan, the property must be in an eligible rural area as defined by the USDA, and borrowers must meet the 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.
How do I get a USDA loan in Virginia?
USDA loan requirements are fairly uniform across the country. To qualify for a USDA loan in Virginia, you must meet the following: Income Limits: You must provide proof of stable employment, but you cannot make over 15% more than your area’s median income. United States Citizenship: Only permanent residents can apply for a USDA loan.
How much does a USDA loan cost in Virginia?
To get a USDA loan, you must meet certain income requirements. In Virginia, you cannot make over 15% more than your area’s median income. The exact dollar amount varies by county, though it’s typically about $114,450 per year for a family of four and $151,050 for families of five or more.
Does the USDA loan program have a loan limit?
The USDA loan program does not set a loan limit based on property value. However, your household income and debt-to-income ratio have a limit on the amount you can borrow. The USDA typically caps debt-to-income ratios at 41 percent. However, the program may be more lenient for borrowers with a credit score over 660 and stable employment or who show a demonstrated ability to save.