Navigating the USDA Direct Loan process can be daunting, but with the right guidance, you can manage it efficiently. This comprehensive guide will walk you through each step of self-submitting your USDA Direct Loan application, making the process as straightforward as possible.
Step 1: Pre-Qualification Review
Before diving into the USDA Direct Loan step-by-step process, assess your eligibility and the feasibility of applying in your state. Focus on these key areas:
- Income Limits: Ensure your income falls within the USDA guidelines for your area. You can check income limits at usdaincomelimits.com.
- Credit Requirements: Check your credit score and history. HomeDirection can help review your credit by offering a soft credit pull, which will not damage your score.
- Property Eligibility: Confirm that the property you wish to buy is in a USDA-eligible rural area. You can find eligible homes using our search tool here.
A thorough pre-qualification review with HomeDirection or a certified loan packager is highly recommended. This review involves submitting key documents such as:
- Identification (ID)
- Tax returns
- Bank statements
- Soft credit pull
Step 2: Prepare Your USDA Direct Loan Application
After pre-qualification, gather the necessary documents for your USDA Direct Loan step-by-step application process. Typically, you will need to prepare the following:
- Application Form: Complete Form RD 410-4, which is the loan application for the USDA Direct Loan, and Attachment 3-J, a checklist that accompanies the application.
- Income Documents: Include employment and asset certification, which details the employment status of household adults and the amount of non-retirement assets. Supporting income documents should also be included.
- Credit Documents: Provide a voided check and the results of a soft credit pull.
- Additional Documents: Submit any letters of explanation and other relevant documents.
Accuracy is crucial as it speeds up the review process.
Step 3: Submit Your USDA Direct Loan Application
Email your completed application and supporting documents to the appropriate USDA office or specialist. Make sure you receive a confirmation of receipt to ensure your documents have been successfully submitted. Find the appropriate USDA office using this link.
Step 4: Get in Line for Your USDA Direct Loan
Once your USDA Direct Loan step-by-step application is submitted, you’ll be placed in line for review. The waiting period varies significantly by state, with some processing applications within a week and others taking up to three years. This variation is due to demand, budgets, and staffing shortages. For a more accurate timeline, contact HomeDirection for guidance.
During this waiting period, you may receive an HB 11 letter, which requires you to respond with timely documents within 15 days to avoid having your application withdrawn. Additionally, the USDA will likely conduct a hard credit pull based on your voided check data, costing approximately $30.
You may start receiving spam calls at this stage. This is because loan companies are buying data from credit reporting agencies to see who is in the process of buying a home. To mitigate this, put yourself on a do-not-call list beforehand. While the USDA does not sell your data, credit reporting companies might. You can opt out here.
Typically, a loan technician will first review your file for completeness, followed by a loan specialist who will finalize your application and issue a Certificate of Eligibility (COE).
Step 5: Receive Your Certificate of Eligibility (COE)
Once approved, you will receive a Certificate of Eligibility (COE). You have 120 days from the issuance of the COE to go under contract on a home. This timeframe requires you to have a signed contract with a seller, not necessarily to move in within 120 days.
Step 6: Complete Homeownership Education for USDA Direct Loan
This is a requirement for USDA to close on the home, so it is best to complete it as soon as possible to avoid any delays in your closing process. Recommended courses include:
- eHome America – $50 per applicant
- USU Extension – $70 for the first applicant and $5 for the second
Step 7: Find a Real Estate Agent Familiar with USDA Direct Loans
HomeDirection has a network of vetted real estate agents knowledgeable about the USDA loan program. Using one of these agents can help ensure a smooth home-buying process.
Step 8: Make an Offer Within Your USDA Direct Loan Limits
When making an offer, ensure it does not exceed your COE amount. COEs are based on estimated amounts for taxes and insurance, so you can ask your loan specialist to update your COE for a specific property based on its actual taxes or insurance costs. If these costs are lower, your approval amount may increase.
Step 9: Inspections and Appraisal for USDA Direct Loan
Conduct a whole home inspection and a pest inspection, and submit the reports to the USDA. They will review these and require any health concerns to be addressed before closing. Your realtor can recommend some local inspectors for you. You can prove these concerns have been addressed with a contractual inspection response, invoices, and photos showing the completed repairs.
Step 10: Closing Your USDA Direct Loan
As with any loan, you should receive a loan estimate within three days of the specialist receiving your contract. Note that both the loan estimate and the closing disclosure will include your note rate, not the subsidized rate. This is to make it clear what your payment could be if you do not receive the subsidy. If USDA funds are available, expect to sign a funding commitment. Three days before closing, you will receive a closing disclosure showing all final fees and numbers needed to close on your home. USDA funds their loans via ACH, so ensure your title company accepts this type of funding.
Conclusion
Self-submitting your USDA Direct Loan application can be straightforward when you follow these detailed steps. For personalized guidance and additional support, consult with HomeDirection or a certified loan packager to ensure your application is complete and accurate. Ready to start your journey toward homeownership? Contact us today!