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17 Frequently Asked Questions About USDA Loans in CT

With beautiful seasons, a great education system and easy access to the coast, mountains and major metropolitan cities, Connecticut has it all. If you have dreams of owning a home in CT but aren’t sure how you’ll be able to finance it, consider applying for a USDA loan.

If you think USDA loans are only for farms, think again. Take a look at our comprehensive FAQ on USDA loans in CT to find out the benefits of the USDA loan program, who’s eligible for a USDA loan, what the standard application process entails and more.

What is a USDA loan?

The USDA home loan program — also known as the Rural Development Loan — was founded by the United States Department of Agriculture in 1949 to boost the economy of less densely populated communities, often in rural and suburban areas.

What are some of the benefits of applying for a USDA loan?

The USDA home loan program is popular with home buyers across the country for a number of reasons, including its 100% financing, fixed affordable interest rates, low monthly private mortgage insurance and flexible credit guidelines.

Is there more than one-type of USDA loan?

There are, in fact, three types of USDA loan: the Single-Family Direct Loan, the Single-Family Guaranteed Loan and the Single-Family Housing Repair Loan & Grant. The direct loan is fully funded, serviced and insured by the USDA and is generally reserved for low- to very-low-income borrowers.

The guaranteed loan is funded and serviced by private lenders and partially insured against default by the USDA; the guaranteed loan is intended for moderate-income borrowers.

The housing repair & loan grant is funded entirely by the USDA and enables very-low-income borrowers to improve or modernize their homes or remove health and safety hazards.

Not sure which USDA loan is right for you?

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I don’t live in a rural area — can I still qualify for a USDA loan?

Contrary to popular belief, USDA loans aren’t reserved strictly for farms or homes in rural areas; many homes in suburbs outside small towns (and even some major cities) also qualify.

Do I need to be a first-time home buyer to use a USDA loan?

No. You can use a USDA loan to purchase your second or third home, so long as you meet all other USDA qualifications and only own one home that meets the USDA’s definition of “adequate property” at a time.

How does the USDA define “adequate property”?

According to the USDA, if you already own a home and intend to retain that property, you are still eligible for a guaranteed loan to purchase another home if you meet the following criteria:

  • Your current dwelling isn’t financed by a USDA direct loan, guaranteed loan or active grant.
  • You are financially qualified to own more than one house.
  • You intend to establish the home financed with the guaranteed loan as your primary residence throughout the term of the loan.
  • Your current home no longer adequately meets your needs (especially in the case of overcrowding).
  • The disability or limited mobility of a permanent resident of your household cannot be accommodated without substantial retrofitting of the current property.
  • You have relocated with a new employer or have been transferred by your current employer to an area outside reasonable commuting distance.

As the borrower, it is up to you to prove that you meet any of these criteria.

What are the income limits for USDA loans in CT?

USDA loan income limits vary from state to state and county to county and are based on the total income of all members of the household over the age of 18. Income caps for a guaranteed loan in the state of Connecticut are shown in the chart below.

1-4 Person Household 5-8 Person Household
Bridgeport, CT $105,350 $139,050
Danbury, CT $119,050 $157,150
Stamford – Norwalk, CT $131,250 $173,150
Hartford-West / Hartford-East/
Hartford, CT
$105,350 $139,050
North Middlesex Country, CT $105,350 $139,050
Southern Middlesex County, CT $105,350 $139,050
Milford-Ansonia- Seymour, CT $105,350 $139,050
New Haven- Meridan, CT $105,350 $139,050
Waterbury, CT $105,350 $139,050
Colchester-Lebanon, CT $105,350 $139,050
Norwich-New London, CT $105,350 $139,050
Windham Country, CT $105,350 $139,050
Litchfield County, CT $105,350 $139,050
New Milford, CT $105,350 $139,050

 

Can I qualify for a USDA loan with bad credit?

Although USDA loans are stricter in terms of credit and credit history than FHA loans, they’re still more forgiving of poor credit than most other loan products on the market. Most USDA-approved lenders require a minimum FICO score of 620 and a standard debt-to-income (DTI) ratio of 29%/41%.

What are the property eligibility requirements for USDA loans in CT?

To view which properties are eligible for the USDA loan program in the state of Connecticut, please refer to the USDA’s interactive property eligibility map.

What types of property are eligible for a USDA loan?

You can use a USDA loan to purchase any type of single-family residence, so long as it’s located within eligible territory and meets the USDA’s standard for being decent, safe and sanitary.

Is there an occupancy requirement for a USDA loan?

Yes. To qualify for a USDA home loan, you must establish the property as your full-time, permanent residence.

What does the USDA loan application process look like?

  1. Find a mortgage broker who offers USDA loans in CT and decide which lender is right for you.
  2. Get pre-qualified. During this step, the lender will determine whether you qualify for the program and estimate how much you are able to afford based on your credit report, DTI ratio, IRS W-2 forms and tax returns, pay stubs from the past two months and an employment verification letter.
  3. Work with a real estate agent to find a USDA-approved home and make an offer.
  4. Fill out and submit a Uniform Residential Loan Application form (Form RD 410-4).
  5. Get a property appraisal from a USDA-approved appraiser. Your mortgage broker will order an appraisal on your behalf.
  6. Receive underwriter approval. The underwriter reviews your credit score, credit history, employment history, income stability and DTI to determine how likely you are to repay your debt.
  7. Carefully review and sign all loan documentation and pay closing costs.

Keep in mind that every borrower (and borrower’s journey) is unique, so your USDA application process might look a little different.

What is a mortgage broker and how can they help me apply for a USDA loan in CT?

A mortgage broker acts as an intermediary between the borrower and the lender. A good broker will review your finances to determine which lender best fits your individual situation and will represent you throughout the loan application process to ensure you receive favorable terms.

Are co-borrowers allowed on a USDA loan?

Yes. There can be up to four co-borrowers on a single USDA loan transaction.

How much do I have to put down on a USDA loan?

USDA loan terms include 100% financing, which means you pay zero money down. You will, however, be responsible for closing costs unless the seller agrees to pay a percentage or all of the closing costs.

Are there any upfront costs with a USDA loan?

If you intend to apply for a USDA guaranteed loan, you’ll have to pay an upfront guarantee fee, as well as a set annual fee.

The guarantee fee is charged by mortgage-backed securities providers, such as Freddie Mac and Fannie Mae, and is typically added to your initial loan amount. The annual fee is paid monthly as part of your mortgage payment and varies from year to year based on the average amount of outstanding principal for the loan.

As of October 1, 2016, both fees were drastically reduced, saving qualified borrowers up to thousands of dollars.

Will I be able to refinance a USDA loan?

Yes. There are three types of USDA loan refinancing: USDA Streamline Refinance, USDA Streamline-Assist Refinance and Non-Streamline Refinance.

Streamline refinance enables homeowners current on their USDA loan for at least 12 months to refinance without a new appraisal. The non-streamline refinance option is similar to streamline finance, with the exception that borrowers are required to get a new appraisal.

Streamline-assist refinance — the most popular of USDA refinancing option — doesn’t require a new appraisal, credit checks or DTI ratio calculations.

Applying for a loan can seem like a daunting process, but it doesn’t have to be with the help of the right mortgage broker. The qualified brokers at Blue Water Mortgage Corporation are committed to helping clients find the right mortgage solution for their unique situation and securing the best rates possible. And with over 100 years of collective experience serving the New England area, we have the necessary expertise to deliver genuine results, as well as the highest level of service and integrity.

If you have additional questions about USDA loans in CT or would like to find out whether you’re eligible for a USDA loan, reach out to us today.