Are you looking to apply for a USDA home loan but don’t know where to begin? If so, we are here to help by telling you how to prepare before applying for your UUSDA home loan.
Knowing what to do before applying for a home loan will help to prepare you and help to ensure that you will get the loan you want. Keep reading below to see what a USDA home loan is and what things you should do before applying for one.
What Is a USDA Home Loan?
A USDA home loan is a loan that is ensured by the U.S. Department of Agriculture. This loan is designed to help home buyers with low to moderate-income purchase homes in rural areas.
If you don’t think the area in which you’re shopping for your home is rural we challenge you to think again. The USDA’s definition of rural is broad and can even include some suburban areas. This means with a little research you can find out that you and your property actually qualify for a USDA rural home loan.
Below we are going to outline the top things you should know before applying for USDA home loans. Keep reading below to see what they are.
- Know Your Credit Score Before Applying for the Loan
Before applying for any type of mortgage, especially a USDA home loan, you will want to see what your credit score is. This is the big factor that’s going to affect your interest rate.
The rule of thumb is that those with higher credit scores will receive lower interest rates and vice versa. Your credit score also shows lenders how reliable you are when it comes to paying bills and paying them on time.
So before applying for your loan you should look at your credit report. Check for any errors and see how to dispel them and make your score higher.
- Consider the Location of Your Home or Where You’re Searching
When it comes to USDA approved homes location is key. Usually, the USDA defines a rural area as having less than 35,000 people. Before going ahead with your loan process you should use their website to see if the house is eligible.
- Know the Loan Amount You’ll Need
Before shopping for a home you should use a USDA loan calculator to help decide what you can and can’t afford. From here you can set a budget and start looking for homes in your said budget.
After committing to this budget you can then try and get pre-approved for the loan. We don’t recommend just coming up with a number and trying to get approved for a loan, you should sit down and see what you can afford so you don’t run into any issues later.
- Know What Will Your Loan Term Be
Another thing you need to consider before applying for your loan is how long you’ll want to pay it off. Usually, homeowners take out loans for 30 years. This leaves them with a moderate interest amount and a moderate monthly mortgage bill.
You do have the option to change this. Loans can be taken out for 28 or even 35 years. Shorter loans will result in higher monthly mortgage payments but the lower interest paid altogether. Longer loans will result in lower monthly payments but more interest paid over the term of the loan.
Overall you need to sit down and decide what’s best for you and your family. After deciding how long you want to pay on your house and what monthly bill you can afford you can then go to your loan officer and have a conversation.
- Think About Down Payments and How It Will Effect Your Loan
Usually, when people buy a house they are required to put a down payment on the property. This down payment will help to affect your interest rate because it will help lenders see how much of a risk you are. Having a larger down payment will result in lower interest and show lenders you are of low risk.
- Have the Paperwork Ready
The most important thing you can do before applying for your loan is to have all your paperwork organized and ready to go. Lenders will look at the information you bring to see if you qualify, this is especially true for USDA loans since they are for lower-income families.
You should have at least 2 years worth of W2s to show the lender. This will help them to see what your average income is and if you qualify for the loan you’re asking for. They may even ask for additional proof of income such as pay stubs, so it’s good to have a few on hand.
You’ll also need your photo ID to prove your identity. Bringing bank statements that show you savings and checking accounts will also help the lender see how much of a risk you are by how well you save and how much you spend.
Now You Know What to Do Before Applying For a USDA Home Loan
We have gone over what a USDA home loan is and who is eligible for it. We then went onto discuss the top things you should do before applying for your loan so you can be ensured to get a loan and buy a house fast.
For more money tips and information be sure to check out the rest of our website.