Do you feel more at home surrounded by pastures than pavement? Have you been turned down for traditional loans while house hunting outside city limits? If so, the United States Department of Agriculture’s Rural Housing Service program might be right for you. This is a low-interest, zero-down-payment home loan reserved for low- to moderate-income families looking to buy a rural home who may not otherwise qualify for a mortgage.
History of USDA Rural Development Loans
USDA-backed mortgages are one of the least-known mortgage programs available, but they provide a path to homeownership for tens of thousands of qualified rural residents each year. The USDA’s RHS home loan program has been around since 2007. Its purpose is to improve the economy and quality of life in rural America. Each year, the program helps people buy and upgrade their homes to make a better life for themselves and their families.
Types of USDA Home Loans
The USDA home loan program comes in three forms:
- Loan guarantees are suitable for low- to moderate-income borrowers. They provide 100% home financing with no down payment required.
- Direct loans are for low- and very-low-income applicants. Income limits vary by location, but in some areas, they fall below $17,000.
- Home improvement loans and grants help low-income residents repair or upgrade their homes. Packages provide up to $27,500 in assistance, and many never have to be paid back.
Eligibility Requirements for USDA Loans
A USDA-sponsored program may seem geared toward farmers and ranchers, but your occupation has nothing to do with your eligibility. Still, income limits, property restrictions, and other requirements apply. Here’s what it takes to qualify for USDA home loan guarantees and direct loans:
- U.S. citizenship (or permanent residency): You must be a legal citizen or permanent resident of the United States to be eligible for any USDA-backed mortgage.
- Income limits for a USDA home loan guarantee: Your income cannot exceed 115% of the median family income in your area, which varies by location and household size. To find out the income eligibility in the county where you live, consult the USDA website.
- Other income qualifications for a home loan guarantee: Your monthly housing payment — including principal, interest, insurance, and taxes — can’t exceed 29% of your income. Other monthly debts can’t exceed 41% of your income, though the USDA will consider higher debt-to-income ratios if your credit score is above 680. You must also prove dependable income for the past 24 months.
- Credit history considerations for a home loan guarantee: You must have an acceptable credit history and no collections on your account within the past 12 months. Your application will also receive streamlined processing if your credit score is above 640. Otherwise, you must undergo more stringent underwriting standards. Other credit history criteria also apply.
- Degree of need: The USDA prioritizes applicants who demonstrate the greatest need. This includes families without decent, safe, or sanitary housing; anyone who is unable to secure a traditional home loan; and applicants at or below the low-income threshold for their area.
- Home size and value: The USDA typically only issues direct loans for homes of 2,000 square feet or less. The market value must also be below the area loan limit, which varies depending on where you live.
- Home location eligibility: The home you want to purchase must be located in a designated rural area as defined by the USDA. Metropolitan areas are usually excluded, though some suburbs may have eligible pockets. Speak with a participating private mortgage lender to learn more.
Benefits of USDA Home Loans
With so many types of mortgages available, why would you want to take out a USDA home loan? Consider the benefits of this mortgage program to help you decide if it’s right for your situation:
- No down payment required
- Interest rates as low as 1%
- Flexible credit score requirements
- No prepayment penalties
- Available to first-time homebuyers and prior homeowners
- No required homeowner counseling
- Option to finance closing costs and mortgage insurance premiums into the loan
- 15- and 30-year fixed-rate mortgages available
- Lower mortgage insurance rates than FHA loans and conventional loans
Estimate Your Mortgage Costs
The loan experts at Financial Concepts Mortgage can help you find some of the lowest rates on home loans in the nation. If you’re looking at buying a home, the first step is estimating the monthly cost of a mortgage. Our calculator gives a simple estimate that covers the expected principle and interest payments based on the purchase price of the home, the down payment, term of the loan, and interest rate.
To work with a locally owned mortgage bank serving Oklahoma, Texas, Kansas, Arkansas, and Alabama, please contact us at (405) 722-5626, or start your application online if you’re ready to get started.