Welcome to our new little series within the First Time Home Buyer Guide. We will be adventuring into what the first time home buyer can expect with doing certain loan types. We’ll also be offering suggestions and tips for how to get the loan process completed with as few headaches as possible! The aim with this new series is to show the first time home buyer that the first home buying process is not as intimidating as one might think, and can be smooth sailing if the first time home buyer knows exactly what they’ll be getting into when applying through any of these programs.
The first loan program we will discuss will be the USDA Loan Program. As mentioned previously, this Loan Program targets buyers who are looking for homes in rural areas that would be eligible for this program. Additionally, there are income restrictions to make this a perfect loan program for first time home buyers who may qualify as median to low income.
The first time home buyer can expect a few things from this program, including asset and income documentation. The first time home buyer can expect to submit all asset documentation for everyone living in the home that is over 18, and all income information for all household members as well. Because the USDA Loan program is a government program, the underwriter and rural development both need to make sure both income and assets make sense and specifically check to make sure the first time buyer is reporting all sources of income. Bank statements are the prime way for a first time home buyer to give an idea of income as well as show money-spending practices to the underwriter, who will then grant an approval based on that and other factors.
For the first time home buyer, the underwriter will require 30 days of the most recent pay stubs for submission. Pay stubs are used for determining the baseline for income, and can also see if there any deductions for other things, such as child or spousal support. In order to get an accurate reading on debt-to-income, if there are any other additional deductions besides taxes, social security, etc., then there will need to documentation provided to the underwriter to show how long the additional deductions will be affecting the income. If the first time borrower pays or receives child support, a child support order is needed, and if a first time borrower pays or receives spousal support, a divorce decree and separation agreement will be required. Both of these items are required because the first time borrower will need to have debt-to-income recalculated if these items weren’t previously shown.
The first time borrower must also send in bank statements for all household members over 18 that will be living in the new home. The underwriter will specifically be looking at spending habits as well as identifying any other sources of income. For USDA specifically, any deposits that seem to come in repeatedly will need to be explained by the first time borrower, whether that deposit is $20 or $200. Acceptable sources for large deposits can be invoices, pay stubs, loan or promissory notes, or other bank statements. By knowing exactly what will need to be explained and sourced beforehand, a first time borrower can submit all of these items with each bank statement to insure any questions the underwriter may have after submission will already be answered and sourced.
USDA Part II for next time, as we talk about more tips and experiences the first time home buyer will go through when applying for a USDA home loan.