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In May, we started the process of acquiring a USDA Home Loan for our first home through our realtor and though didn't have “high” hopes, we were surprised and got approved. It was a relief but at the same time, kinda scary.
Do you have the credit, but not the funds to purchase your first home?
Do you want to get out of the rental rut?
I’ve talked a few times in previous posts about how my husband and I have been working really hard on our credit, how we’ve been working REALLY hard towards purchasing our first home.
Were we actually going to do this?
Actually, OWN Our First home?
Will we be able to do this?
Well, we started the home hunting process and we’re in the home stretch on closing on our first home (and hopefully forever), which should be done by the end of this month. The process has been a pain in the butt, however, it’s been more so because the range that we were approved for and what we initially wanted, just weren’t lining up as a possibility.
What you need to understand (which has been the most difficult for me, because of who I am), is that it takes time. You’re on the government's time, which means they do things often at a snail's pace. So, please understand that things won’t happen as quickly as buying your first home as it would with say a conventional or FHA loan.
For the past 3-4 years, I have been budgeting like crazy so we could fix our credit in order to be even CLOSE to purchasing our first home. It has been a bunch of trials and errors, but once I figured out what we were doing wrong, I fixed the mistakes and started us on the road to increase our credit scores.
The U.S. Department of Agriculture & Rural Development (USDA for short) has loans for those who want to purchase a home, have the credit, but are considered lower income. While it's a tedious process of acquiring a USDA Home Loan, it's very much worth it.
When it comes to acquiring a USDA Home Loan for your first, second, or even 10th home, there are very important steps that you have to follow. You can't short cut, cut corners, or even try to pull a fast one in order to get approved quicker or at a higher amount than what you should.
With using this loan, we’re able to get out of our dingy, gross, falling apart apartment and into a home that is SAFE, free of mold, OURS, comfortable, OURS, away from upstairs neighbors who stomp and pound all hours of the night, OURS, and have I mentioned OURS?
Acquiring a USDA Home Loan For Your First Home, You'll Need:
- Meet income-eligibility
- Agree to personally occupy the dwelling as their primary residence
- Be a U.S. Citizen, U.S. non-citizen national or Qualified Alien
- Have the legal capacity to incur the loan obligation
- Have not been suspended or debarred from participation in federal programs
- Demonstrate the willingness to meet credit obligations in a timely manner
- Purchase a property that meets all program criteria
The target group is lower-income (which varies by county & state – see the income guidelines for your state here) but has a credit score of 620+. At this stage, it is almost impossible folks who have lower-income to even think of buying a home much less starting the process of acquiring a USDA Home Loan. This plan makes it possible for them to buy their “ dream house”.
The Process of Acquiring a USDA Home Loan For Your First Home:
- Home Buyer’s Education Course and Applicant Orientation – This is a must in order to even be 100% approved.
- Offer Details Will Be Sent to Processor/Packager – Before you write an offer to purchase a home, your Realtor will send the details of the offer to your processor/packager. This is to ensure it meets any and all USDA guidelines.
- USDA reviews Offer Details – Once USDA receives the contract, they will send the Initial Loan Estimate and supporting documents to the buyer directly.
- Home & Structural Integrity Inspection – Buyer selects Home Inspector – must be ASHI or NAHI certified. All documents below must be sent to the processor/packager. If your Home Inspector suspects any structural issues while acquiring a USDA Home Loan, you will have to pay to have a structural engineer come out and do another inspection before moving any further.
- Pest Inspection – Buyer selects Pest Inspector- send receipt and report to processor/packager.
- Water Quality Test & Septic Inspection – If the property has well water or a septic system, we will need a well-water quality test and septic inspection done by the local health department.
- Homeowner Insurance – Buyer must obtain a quote for Home Insurance from an agent of buyer’s choice. When starting the process of acquiring a USDA Home Loan, you need to start also shopping around for homeowner's insurance.
- USDA will review Home Inspection and certifications – USDA will provide a list of repairs required as a condition of USDA financing. Buyer and Seller to provide written contract addendum listing all required repairs.
- USDA will order an appraisal – Appraiser will contact list agent directly to schedule.
- Final Approval Interview – Once the appraisal is done and the plan is in place for inspection issues, Packager and USDA will schedule the “Final Approval Interview” with the buyer.
- USDA will review file – BUYER MUST have receipts for any borrower-paid items (HBE class fee, Inspections, Insurance, any buyer-paid repairs) or else your closing WILL BE delayed.
- Final Review, Packaging, and Title Work – After conducting the final approval interview, USDA will review the file for all items required (above). If the file is complete, USDA will coordinate with Packager and Title Agent to review title work and allocate funds.
- Preparation of The Final Documents – THE USDA REQUIRES A MINIMUM OF SIX BUSINESS DAYS AFTER “final approval interview” to request funds from D.C. and prepare closing documents for your USDA Loan.
- Purchase Homeowners Insurance – Buyer must purchase homeowner’s insurance policy…. we used State Farm – Marci Barrett (If you're in NE Ohio), as they had the lowest annual insurance and offered us the most with our policy since we also bundled it with car insurance as well.
You can be self-employed and still qualify for the home loan through USDA, however, getting self-employed loans, has a few more requirements and loops you have to jump through. Since at this point, I’m not making enough on my blog, we didn’t have to figure in my blog income.
If you are a contract worker that receives a 1099 form, file taxes with your income, etc. They will factor that income when you are acquiring a USDA Home Loan. Be aware that if you choose to accept (which you don't have to do) any of the subsidies, they will do an income re-verification, and if your income increases by a certain percentage, your mortgage will increase because your subsidy will decrease. So keep that in mind ahead of time.