New Jersey USDA Loans – USDA Rural Development Loan
Do you want to purchase a home in New Jersey? If so, you may be pleased to learn that most of the state is eligible for the USDA rural development loan. The United States Department of Agriculture created the rural development loan (also known as the “USDA guaranteed loan” or “USDA rural housing loan”) to help promote home ownership for low and middle income households. While these mortgages are known for assisting low income families to buy a home in a rural area, USDA loans are actually available to moderate income households as well.
Advantages of the USDA Rural Development Program
- No Down Payment – What is possibly the single most well known benefit of a USDA loan is that they do not require any down payment.
- Finance Your Closing Costs – You can include the closing costs (loan origination, appraisal, upfront mortgage insurance, etc.) into the loan.
- Low Income Accepted– USDA loans are available to borrowers with low income. In fact, USDA loans are intended to help home buyers with lower income achieve home ownership.
- Fixed Interest Rates – All USDA home loans are provided on a fixed mortgage rate. This means that the interest rate stays the same and does not adjust or fluctuate like they do with an adjustable rate mortgage (ARM), which can cause sudden spikes in rates and payments.
- Higher Loan Limits – While other loans such as FHA, VA, and conventional loans have strict loan size limitations, there are no such loan limits placed on USDA loans. This means that if you qualify, you might be able to get a nicer home with a USDA loan than a FHA other other type of loan.
- Low Mortgage Insurance – The monthly mortgage insurance on USDA loans, called the “guarantee fee” is lower than it is for other government-backed mortgages such as FHA loans. For USDA guaranteed loans, the monthly guarantee fee is 0.50% of the loan amount, and is adjusted each year as the loan balance decreases, therefore resulting in monthly mortgage payments being lowered annually.
USDA Home Loan Requirements
The USDA rural housing guaranteed loan program requires that you meet certain eligibility requirements related mostly to income and the property you want to buy. A great aspect of USDA loans is that the way you qualify is actually very different than it is with other home loans, such as conventional and FHA mortgages. While other programs require you to show more income, better credit, and more assets, the USDA is actually looking for those who may have a harder time getting a loan (you can still qualify with excellent credit, and even some assets, but not too much income).
The following criteria are the primary qualification requirements:
- Credit Requirements – A minimum credit score of 640 is required for an automated approval. However, borrowers with lower credit scores (within the 580-639 range) may still get approved, but it will require having sufficient “compensating factors“. This could be money in savings, extra income (in addition to your primary job), conservative use of credit, and/or low debt-to-income ratios. If your credit is below 640, do not let this discourage you from pursuing a USDA loan, since you still may get approved.
- Income Requirements – Income is limited to 115% of the median income for New Jersey. This means your household income can not be more than 15% above the median income. The calculated income limits (median income x 115%) for the USDA guaranteed loan in New Jersey are: For 1-4 people you can have a combined total annual household income of up to $82,700. For a household with 5-8 people (or more) the total household income can be as high as: $109,150. The number of persons includes you, your spouse, your children, and anyone else living in your home. Want to see more information or verify your income eligibility? The USDA has a very useful income eligibility tool which allows you to calculate your eligible income, make certain deductions, and then see if your income qualifies.
- Owner Occupied – You must personally occupy the home you want to buy with a USDA loan. No investment, rental, or income producing properties are allowed. Another requirement is that the home be either a single family residence, or a condo. Some other USDA lenders in New Jersey may allow mobile or manufactured homes, but we do not offer USDA loans for these types of properties.
- Property Eligibility – USDA loans are intended for rural development, and therefore are exclusively available for homes in rural areas. Fortunately, most of New Jersey is in an eligible zone. If you would like to, you can look up properties by address on the USDA property eligibility search. This tool also allows you to view a map with ineligible areas shaded in.
These are the standard USDA loan requirements. If you are approved for a USDA loan, you will receive the exact conditions that will be required for your loan to close.
Would You Like to Get Pre-Approved for a USDA Loan?
It is easy to find out if you qualify for a USDA loan. We offer free consultations,
and can help you quickly determine if you are eligible for a USDA loan.
USDA Loan Frequently Asked Questions:
Do USDA loans require you to be a first time home buyer?
No, you do not need to be a first time home buyer. You can still qualify for a USDA loan if you have previously owned a home. If you currently own a home, you would first need to sell it, since USDA loans are only for a primary residence, and not a second home, investment property, or vacation home.
How do I find USDA eligible homes for sale?
The process of finding eligible homes is quite simple. You first need to make sure that you are searching in an eligible area. Once you are certain that you are searching in an eligible area, you can browse homes for sale in that location. Once you find a property that you are interested in, simply enter the address into the property eligibility tool and confirm it’s eligibility.
Can I get a USDA loan if I am self-employed?
Yes, as long as you can provide 2 years of tax returns, and meet the income limits / requirements, then you can get a USDA loan if you are self-employed.
How much will my monthly payment be?
In order to find out exactly how much your payment will be, you must get pre-approved. If you would like to estimate what your monthly payment will be, use our USDA loan payment calculator.
What is the maximum amount that I can borrow?
There are no exact loan limits for USDA loans, as there are for other loan types such as FHA and conventional loans. The amount that you personally can borrow will be determined upon your debt-to-income ratio. This is calculated based on your monthly income and monthly debts. The max DTI ratio (unless you have “compensating factors” such as savings or great credit), is 43%. So if you make $5,000 in combined income, your total debts (which would be your new mortgage payment, along with all other debts, such as auto loans and credit cards), must not exceed $2,150/month (which is 43% of the $5,000 example we are using here).
If I was rejected for a USDA direct loan, can I apply for the USDA guaranteed loan?
Yes, you absolutely can. Many borrowers that apply for the USDA direct loan are turned down due to not meeting the income requirements. In the event this happens, you can still potentially qualify for the USDA guaranteed loan. The direct loan is for the lowest income borrowers, whereas the guaranteed loan allows a little more than the average income to be eligible.
Are there any disadvantages to USDA loans?
The only downsides of USDA loans are the income and property restrictions. If you want to buy a home in a city, you would not be able to use a USDA loan. Also, if you make too much money, you will not be able to qualify for a USDA loan.
Can I use a USDA loan to purchase a duplex?
The only way you are allowed to purchase a duplex is if you buy only one of the two units. You are not allowed to buy both units of a duplex (or 3 units in a triplex, or 4 units in a fourplex). You can only buy one unit of the multi-unit property, or a single family residence (detached home, or in plain words, your typical single unit house).
Are USDA loans available to purchase a farm or agricultural property?
In spite of being backed by the United States Department of Agriculture, USDA loans are not available for agricultural properties or farms of any kind. It is common to assume they would be, but the USDA rural housing loans are only for residential properties.
What refinancing options exist for USDA loans?
Once you have a USDA loan from the original purchase of your home, you may be able to streamline refinance on future loans. This is the equivalent of the FHA or VA streamline programs, and is an incredible refinance product. The USDA streamline refinance provides an easy way to quickly reduce your mortgage payment. It does not require a new appraisal (the one from your original purchase is used). You do not have to submit any documentation for your job or income, and no credit check is required. It is an easy and efficient way to lower your interest rate and mortgage payment.