How to get preapproved for a USDA loan

Be ready to submit documents that show your income, employment history and debts during the USDA loan preapproval process. You’ll also need a credit score of 680 for automated underwriting or 640 for manual underwriting.

How to get preapproved for a USDA loan:

Applying for preapproval can help identify potential issues you may run into during the actual application process. Here’s how to get preapproved:

1. Compare USDA-approved lenders based on the lender’s experience with USDA loans, customer service and underwriting requirements.
2. Submit details about your income, assets and credit.
3. Your lender reviews your application and eligibility.
4. Receive your preapproval application decision.

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What questions will I need to answer?

Be prepared to answer questions based on USDA’s strict eligibility requirements. Some questions include:

• Credit score. USDA’s Guaranteed Underwriting System (GUS) is an automated system that wants to see a credit score of 680. Most lenders who use a manual underwriting system require a minimum credit score of 640. You may qualify with a score below 640, but you’ll need to show extenuating circumstances.
• Income. USDA income limits vary depending on the property location. Your annual income cannot exceed the median household income by more than 15%. Check an area’s income limit on the USDA website.
• Debt-to-income (DTI) ratio. Lenders prefer to see a DTI maximum of 29% for all your monthly housing expenses and your overall DTI should be no more than 41%.
• Loan-to-value (LTV) ratio. Your LTV can be as high as 100%.
• Employment history. Lenders will likely request your previous two-year employment history but primarily look at the most recent 12 months on the job to make sure you have a steady income.

The USDA loan preapproval timeline

The preapproval process generally takes less than an hour. Your lender verifies your information and pulls your credit report. You should receive a preapproval letter within three business days.
Your preapproval letter usually lasts from 45 to 90 days, depending on the lender. Speak to a loan officer for a detailed timeline.

What happens if I’m rejected?

Your lender should tell you why it denied your USDA loan so you can try and reapply.
If your credit report is the issue, you can request a copy to check for any errors. If your debt-to-income (DTI) is too high, try to pay off some debts to lower the ratio. If your income is over the limit, you may consider qualifying in a different area with a higher median household income.
Another option is to apply with another lender with different eligibility requirements, or talk to a loan officer to see whether you qualify for another loan program. If you have a credit score below 620, consider another program available to borrowers with bad credit.
If you reapply for preapproval, be sure to apply within 45 days to protect your credit score — some lenders do a hard pull on your credit.

Bottom line.

USDA loan preapproval is a way to check your USDA loan eligibility and address any issues before you apply for the loan. Be sure to compare lenders to see which option is best for you.

Frequently asked questions.

• How much are USDA loan closing costs?

  Most lenders charge 2% to 5% of the purchase price, but it varies by lender. Costs can be rolled into your loan, but should be comparable to what a lender charges for similar loan programs, such as FHA or VA mortgages or its conventional loans.

• How long does it take to close on a USDA loan?

  USDA loans take a similar amount of time to close as other loans on the market. But unlike other loans, the lender cannot close the loan on its own. Instead, your state’s USDA office must also sign off on your mortgage.
  In general, it takes about 45 days to close, but it may take longer depending on additional requested documents and the speed of your state’s USDA office.

• How many USDA loans can I have?

  Only one. When you apply, your current home cannot be financed with a USDA loan. And since you must use your USDA loan as your primary residence, it’s not possible to have more than one USDA loan at the same time.