Are you ready to buy a home but aren’t sure how much loan you can obtain? If you want USDA financing, you can go through the pre-approval process. It’s quick and painless, plus it helps you save time when you actually do find a home.
Before we start, you should know that there’s a difference between the pre-qualification and pre-approval. The pre-qualification is an estimate of what you can afford. The lender doesn’t pull your credit or look at your income documentation. With a pre-approval, the lender does pull your credit and looks at your qualifying documents. They will pre-approval you for a certain loan amount based on the conditions that they state.
Keep reading to see how to get your USDA pre-approval.
Provide Your Documentation
In order for a USDA lender to pre-approve you for a USDA loan, you must provide the following documents:
- Paystubs cover the last 30 days
- W-2s from all jobs for the last 2 years
- Tax returns for the last two years if you are self-employed
- Any asset statements for the accounts that you’ll withdraw funds for closing costs
- Proof of employment
- Your approval to pull your credit
The lender will evaluate these documents, but they will also need one more bit of information. They first need to determine if you are eligible for the USDA program. The USDA is unique in the fact that you can actually make too much money and not qualify for the loan. The USDA uses your total household income to determine if you qualify. They do this because they recognize the multiple generations are living together now and everyone often helps with the bills.
You’ll need to provide the gross income for every adult living in your home. The USDA lender will then determine if your total household income is less than 115% of the average income for your area. If it is, then you can move forward. If your total household income exceeds that amount, you will have to use another loan program.
Getting Your Pre-Approval
Once the lender determines you are eligible for the program, they will review the documents you provided. They will make sure that you meet the following requirements:
- Minimum 640 credit score
- Maximum 29% housing ratio
- Maximum 41% total debt ratio
- Enough money to cover the closing costs
- Stable employment/income
If your documents support the above, the lender can issue a pre-approval. The pre-approval usually has the following conditions:
- Proof that you are still employed at the same job at the time of the closing
- Proof that your credit score hasn’t changed at the time of the closing
- Proof that you didn’t open any other accounts between pre-approval and closing
- Proof that the home is worth at least as much as you bid on it
- Proof that the home meets the USDA guidelines
The lender will provide you with a pre-approval letter that states the loan amount they approved you for as well as the conditions to close the account. The pre-approval letter will then be good for the next 30 – 60 days. If you don’t find a home within that time, you will have to go through the pre-approval process again as circumstances could have changed that would make your pre-approval null and void.
Getting pre-approved for the USDA loan is a great way to get your foot in the door when you look at homes. Many sellers and realtors only want pre-approved buyers. This way they know that you are serious about buying a home and have the capability to do so.Click to See the Latest Mortgage Rates»