Why Would My USDA Home Loan be Denied?
Did you know there is an option for rural homebuyers in upstate New York that doesn’t get much publicity? It’s true! USDA loans are loans guaranteed by the federal government to help low-to-moderate income families buy homes in rural areas. They require no money down, and the interest rates are often very competitive.
USDA loans provide 100% financing for eligible buyers who are looking to purchase their primary home and/or refinance their existing home. If the requirements are met, it also may be possible to roll the closing costs into the mortgage.
Qualifying for a New York USDA mortgage or home loan is quite like qualifying for other mortgage programs. Applicants need a two-year work history, reasonably good credit, and meet income limits. Also, they:
- Agree to live in the house as their main residence
- Are U.S. citizens or U.S. permanent residents
- OR are aliens with qualified status
- Have not been prohibited from participating in federal programs
- Have the legal authority to take out the loan
- Are purchasing a home that satisfies all USDA requirements
Why a USDA Home Loan Application Might be Denied
While every prospective homebuyer’s situation is different, here are a few of the most common reasons your USDA loan could be denied:
Your property isn’t eligible
To qualify for a New York USDA loan, a home must be in a targeted rural area. Some people think USDA home loans are only available for very remote areas, but there are eligible homes just outside suburban areas. Use the USDA eligibility map to see if a property qualifies.
You don’t meet income requirements
Applicants need to have an adequate, dependable income. Also, the prospective homebuyers’ annual income cannot be over 115% of the median income for the area, although the USDA makes adjustments for family size, childcare expenses for children age 12 or younger, etc.
Learn more about USDA income limits and the income limits of NY counties and towns here.
Your work history is insufficient
Applicants need to have a 24-month work history or some form of documented adequate, dependable income. That can include salary, hourly wages, documented tip income, recurring bonuses, consistent over time, alimony, and child support, etc.
You have a low credit score
In most cases, the USDA is looking for a credit score of 640 or higher, although 680 or higher is preferred.
An application with a credit score below 640 may still be approved by considering monthly income and debt-to-income ratio. The USDA takes into consideration low credit scores that result from unforeseen circumstances.
Give your score a boost with these 3 Simple Habits for a Better Credit Score.
Your debt-to-income ratio is too high
Your monthly debt (i.e. credit cards, installment loans, school loans, etc.) should not exceed 41% of your gross monthly income. Your proposed monthly mortgage payment should not be more than 29% of your monthly income. The USDA gives some flexibility with the debt-to-income ratio if there are compensating factors like a good credit score, stable employment, potential for increased earnings, and proven ability to save.
Beyond these reasons, a USDA loan application could be denied due to inadequate cash savings, spotty employment history, or the house not meeting appraisal guidelines.
Securing a USDA Home Loan in NY through Maple Tree Funding
For more details and information about USDA home loans, be sure to check out our Guide to USDA Home Loans.
Ready to find out if you qualify for a USDA home loan? Contact the experts at Maple Tree Funding and get the process started today. Give us a call at 518-782-1202 or fill out our online contact form to schedule your consultation!