USDA Loans Illinois Requirements: A Detailed Guide for 2023

The United States Department of Agriculture (USDA) offers various loan programs to help individuals and families living in rural areas achieve homeownership One such program is the USDA Single Family Housing Direct Home Loan program, also known as the Section 502 Direct Loan Program This program provides affordable financing to low- and very-low-income applicants to purchase, build, repair, renovate or relocate homes in eligible rural areas.

As with any mortgage loan program, there are certain eligibility requirements and guidelines that applicants must meet to qualify for a USDA direct home loan in Illinois. This comprehensive guide covers all the key USDA loan requirements in Illinois, including maximum income limits, credit score requirements, down payment rules, eligible property types, and more.

Overview of USDA Direct Loans

The Section 502 Direct Loan program offers 100% financing to eligible homebuyers. Key features include:

• No Down Payment Required USDA direct loans do not require any down payment, Borrowers can finance up to 100% of the appraised value,

• Low Interest Rates: Interest rates are set based on current market rates but can be as low as 1% with subsidized payment assistance. As of June 2024, the interest rate is 4.75% for low- and very low-income borrowers.

• Long Repayment Terms: Loan terms can extend up to 33 years (38 years for very low-income borrowers). This helps keep monthly payments affordable.

• Payment Subsidies Eligible applicants can receive subsidies to reduce their monthly mortgage payments The subsidy amount depends on the applicant’s income level.

• No Mortgage Insurance: USDA direct loans do not require private mortgage insurance.

Illinois USDA Loan Income Limits

The first eligibility requirement is meeting the income thresholds set by the USDA. The income limits to qualify for the direct home loan program in Illinois are:

• Low-income: Income must be at or below 80% of the area median income. View the latest low-income limits by Illinois county.

• Very Low-income: Income must not exceed 50% of the area median income. Check the very low-income limits here.

Applicants can check if their income falls within the current USDA income thresholds for their county using the USDA Income and Property Eligibility website.

USDA Credit Score Requirements

To qualify for the direct home loan program, applicants must have a credit history that demonstrates their ability and willingness to repay debts. At a minimum, applicants must have:

• A credit score of at least 620 to be eligible.

• At least 2 credit references from the last 12 months.

• No outstanding non-medical collections or judgements totaling over $2,000.

• No history of bankruptcy, foreclosure, or deed-in-lieu in the past 36 months.

• No mortgage late payments in the past 12 months.

While a minimum score of 620 is required, applicants with scores between 620 to 659 may need to meet additional credit requirements. USDA lenders will evaluate your entire credit profile before making a determination. Having some compensating credit factors can help improve your chances of approval despite credit challenges.

USDA Down Payment Assistance

A major benefit of USDA direct loans is that no down payment is required in most cases. Borrowers can finance up to 100% of the appraised value of the property. The only exceptions are:

• Applicants with non-retirement liquid assets over the eligibility limits may be required to use a portion of those assets as a down payment. The liquid asset limit is $15,000 for low-income borrowers and $10,000 for very low-income borrowers.

• Applicants receiving seller contributions may need a minimum down payment of 1% of the purchase price.

Otherwise, eligible applicants will not have to provide any down payment from their own funds to close on a USDA-financed home.

Eligible USDA Loan Locations in Illinois

To qualify for the direct home loan program, the home financed must be located in an eligible rural area. The USDA defines rural areas as:

• Open country areas with populations under 35,000
• Towns or cities with populations ranging from 35,000 to 49,999 (check exceptions)
• Designated places with populations under 10,000 that are not part of an urban area

The easiest way to check if a specific property address is in an eligible rural location is to use the USDA’s Property Eligibility Site.

You can also view rural area maps for each Illinois county on the USDA website to get a general idea of coverage areas. But the property eligibility tool provides the most accurate determination.

Types of Homes Eligible for USDA Loans

USDA direct loans can be used to finance different types of homes, including:

• Existing Homes: You can use a USDA direct loan to purchase an existing resale home.

• New Construction Homes: The loan funds can be used to build a new home on land you own or purchase.

• Manufactured Homes: Factory-built manufactured homes that meet USDA specifications are eligible. The home must be attached to a permanent foundation.

• Modular Homes: Homes built in sections at a factory and assembled on-site can qualify.

• On-Farm Homes: Primary residences located on farms or ranch land are eligible. Agricultural income can be considered for repayment ability.

• Two to Four Unit Homes: Small multifamily homes of 2 to 4 units are eligible if one unit is occupied by the borrower.

The home must not exceed the maximum size limits for the area and be modest in design. Luxury homes or properties used for any income-producing activities are not eligible.

Maximum Loan Limits in Illinois

The USDA direct loan program offers 100% financing. But there are limits on the maximum loan amount based on the appraised value of the home and the area loan cap for each county.

As of 2023, the maximum loan limits by Illinois county generally range from $140,000 to $375,600 for both existing and new homes. You can look up the exact loan caps by county on the USDA Illinois loan limit webpage.

The final loan amount will be the lower of the appraised property value or the applicable area loan limit. So even if the home appraises for a higher amount, the loan cannot exceed the limit for that county.

Repayment Ability Requirements

To receive a USDA direct loan, applicants must demonstrate sufficient repayment ability. Some key requirements are:

• The monthly mortgage payment cannot exceed 29% of gross monthly income.
• Total debt obligations cannot exceed 41% of gross monthly income.
• Applicants must have a steady income history. Seasonal or unstable income may require additional documentation.

Meeting these ratios may require applying for a subsidized loan with reduced payments. The repayment ratios are more relaxed for applicants receiving payment assistance subsidies.

How to Apply for USDA Loans in Illinois

To get started, gather all required documents and contact a local USDA home loan specialist. Or find a USDA-approved lender to assist with the application process.

When submitting a complete application package, the USDA underwriting team will verify all eligibility criteria before approving the loan. Allow at least 60 days for full processing.

The Bottom Line

USDA direct home loans offer a great opportunity for low-income borrowers to purchase rural properties with no down payment and at below market interest rates. Just make sure to review all the USDA loan requirements applicable to Illinois to ensure you qualify before making an offer on a home.

This guide summarizes the key eligibility criteria, including maximum income limits, minimum credit scores, eligible locations, qualifying properties, loan caps, and repayment ability standards. Check your potential eligibility and connect with a USDA lender to kickstart the mortgage process. With proper planning and preparation, USDA financing can make your dream of homeownership a reality!

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