The USDA loan process is similar to any other loan process with a few exceptions. The general process involves:
- Prequalifying with a USDA-Approved Lender
- Apply for Preapproval
- Find a USDA-Approved Home
- Sign a Purchase Agreement
- Go Through Processing and Underwriting
Prequalifying with a USDA-Approved Lender
The first step to getting a USDA loan is finding a qualified lender. Hundreds of lenders make USDA loans, so finding a USDA-approved lender should not take long. Once you’ve found a specialized lender, you will begin the preapproval process. This process is fairly simple and will provide you will a general estimate of what you will be able to afford, as well as if you qualify for a USDA loan.
This is an important step because it will allow you to save significant time and effort by narrowing down the homes you will be able to afford. During this process, you should be prepared to answer questions such as how much you wish to borrow, your gross income, what assets you have, and your debt. Finally, the lender will ask your permission to do a hard credit check.
Apply for Preapproval
The preapproval process is similar to the prequalification process, except it is more detailed and thorough. During this step, the lender will need you to verify information about your income and finances. To be preapproved you will have to provide:
- W-2’s and Tax Returns
- Pay Stubs
- Photo ID
- Bank Statements
- Social Security
During this stage the lender will determine, based on your provided documents, how much you can actually borrow. Getting preapproved is a vital step in the home buying process. Home sellers and real estate agents want to see offers from preapproved buyers. By having the preapproval letter, it shows sellers you are serious about purchasing a home.
Find a USDA-Approved Home
Now that you are preapproved you should find a knowledgeable real estate agent to help you search for a home. Since location is the primary factor in USDA home eligibility, finding a real estate agent with USDA loan experience will make finding qualifying houses much simpler. Before you know it, you will find your future home.
Sign a Purchase Agreement
Once you’ve found your perfect home, you will work with your lender and agent to make an offer. During this time you can negotiate with the seller about covering a portion or all of your closing costs.
After you and the seller sign a purchase agreement, your lender will order a USDA loan appraisal. This appraisal is not an inspection and is required by the USDA as a safeguard to the homebuyer. The appraiser will ensure the home is move-in ready and that the property meets USDA standards. If something does not meet standards, it must be fixed before closing.
Processing and Underwriting
Next, an underwriter will review your information to ensure your application and documentation are accurate and truthful. The underwriting process can take longer for a USDA loan than a traditional loan because the program uses a two-party approval system.
First, your lender will underwrite the loan file to make sure it meets all USDA requirements. Second, the USDA will underwrite the loan file. This process is done automatically if you have a credit score above 640, and manually if your credit score falls below 640. Once, the underwriting process is concluded, you’ll be able to close on your loan.
Finally, you will receive a Clear to Close from your lender. This means you are approved for your closing date. At closing, you will sign all necessary paperwork, finalize your USDA loan, and take ownership of your new home.