USDA Loan Requirements in NC and Frequently Asked Questions

There are four types of USDA loans available to North Carolina residents:

• The Single-Family Direct Loan assists low- and very-low-income applicants and is fully funded, serviced and insured by the USDA. The USDA direct loan has 33-year and 38-year repayment options depending on your income level.
• The Single-Family Guaranteed Loan is intended to assist moderate-income borrowers; it is funded and serviced by private lenders but is partially insured against default by the USDA. The USDA guaranteed loan has both 15-year and 30-year fixed-rate options.
• The Single-Family Housing Repair Loan & Grant enables very-low-income borrowers to improve or modernize their homes or remove health and safety hazards; it is funded entirely by the USDA.
• Multi-Family Housing loans assist rural property owners through loans, loan guarantees and grants that enable owners to develop and rehabilitate properties for low-income, elderly and disabled individuals and families.

USDA loans are more affordable than other loan types. Unlike conventional and FHA loans, USDA loans offer 100% financing with no down payment required. USDA borrowers pay very low mortgage insurance rate (MI) of .4%, which is less than half the cost of an FHA loan’s monthly mortgage insurance fee. USDA loans are very straightforward, with no prepayment penalties or hidden fees. And as of September 1, 2024, the interest rateCitation for Single Family Housing Direct home loans is 4.75% for low-income and very low-income borrowers.

Although USDA loans are stricter than most other loan types due to their eligibility requirements, their criteria is no more difficult to meet than any other type of loan. The most important requirements are income and property eligibility.

As luck would have it, there are a number of rural areas in North Carolina that may qualify for USDA loan property eligibility. Areas that are not eligible are typically located around major cities such as Charlotte and Raleigh. To see which areas are eligible for a USDA loan in NC, you can refer to the USDA’s mapping toolCitation.

The USDA income limit is based on the sum of income of all household members over the age of 18, regardless of whether their name is on the loan. To qualify, the gross household income must be less than 115% of the county’s median income.

USDA loans have many advantages, especially for low-to-middle income borrowers. But because of their unique parameters, there are a few disadvantages to utilizing this type of home loan. Here is a breakdown of the pros and cons of USDA loans in North Carolina.

In North Carolina, there are a few basic requirements you must meet in order to be eligible for a USDA loan.

There are a few basic requirements you must meet in order to be eligible for a USDA loan in North Carolina.

• You must have U.S. citizenship or permanent residency.
• You must agree to utilize the property as your primary residence.
• You must have a dependable income for a minimum of 24 months.
• You must be able to make a monthly payment — which includes principal, interest, insurance and taxes — that is 29% or less of your monthly income.
• Your total monthly debt payments cannot exceed 41% of your income.
• You must have an acceptable credit history, with no accounts converted to collections within the past 12 months.

The USDA home loan program has strict income eligibility restrictions, with income limits varying from state to state from county to county. Income caps for a guaranteed loan in the state of North Carolina are shown in the chart below.

If you aren’t sure whether you qualify for a USDA loan in North Carolina, get in touch with one of our experienced mortgage brokers. They will answer your questions and help guide you through the process.

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

The most notable benefits are 100% financing, fixed affordable interest rates, low monthly mortgage insurance and flexible credit guidelines.

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

While common belief is that USDA loans are reserved strictly for farms or homes in rural areas, that’s not always the case! Many homes in the suburbs can also qualify.

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

No, as 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”?

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.

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 NC 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.

At Blue Water we recognize that every borrower is unique, so your USDA application process might look a little different. Reach out today – we look forward to listening and learning about your needs as you go through this journey.

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

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. It’s always important to make sure you find a broker who is knowledgeable about the home-buying process in North Carolina.

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. However, you will 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 and 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 as part of your monthly mortgage payment and varies from year to year based on the average amount of outstanding principal for the loan.

As of 2024, the USDA guarantee fee is 1% of the loan amount, and the annual fee is .35% of the loan amount.

Will I be able to refinance a USDA loan?

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

Streamline refinance enables homeowners currently on their USDA loan for at least 12 months to refinance without a new appraisal.

Streamline-assist refinance is most popular of USDA refinancing options and does not require a new appraisal, credit checks or DTI ratio calculations.

The non-streamline refinance option is similar to the streamline option; however, borrowers are required to get a new appraisal.

We can help you get pre-qualified for a USDA loan. Contact us with any questions or to get started.

USDA Credit Requirements

There’s no minimum credit requirement for the USDA loan, however, borrowers with a credit score of 640 or higher are eligible for streamlined processing. USDA loans are 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%.

Borrowers with a credit score lower than 640 are still eligible to receive a USDA loan, though they will be subject to the standard underwriting process. The lender will assess the length of your credit history, your repayment patterns, your credit utilization and your credit score to determine if you can afford the loan. If you have a nontraditional or no credit history, lenders will evaluate your eligibility on a case-by-case basis.

No Set Loan Limits

Since USDA loans are intended for lower-income areas with lower property values, the USDA does not set loan limits. Rather, it evaluates borrowers on an individual basis to determine their maximum loan amount. Maximum loan amounts are based on factors such as your DTI ratio, monthly income, assets, credit score or mortgage payment history and the value of the property.

Ways to Use a USDA Loan:

• New or existing residential property to be used as a permanent residence
• A site with a new or existing dwelling
• Refinancing
• Special design features or permanently installed equipment to accommodate disabilities
• Reasonable and customary connection fees, assessments or the pro rata installment costs for utilities
• A pro rata share of real estate taxes
• Essential household equipment (e.g., carpeting, ovens, refrigerators, washers, dryers, etc.)
• Energy efficiency installations (e.g., insulation, solar panels, double-paned glass, etc.)
• Installing fixed broadband service
• Site preparation costs
  

If you have any additional questions about USDA loans in North Carolina or want to find out if you qualify, talk to one of our experienced mortgage brokers today. Our team has 150 years of combined experience helping clients find the best mortgage solution for their unique needs.