Rural Development Loans – Guidelines on How To Obtain a Housing Loan From The USDA Rural Development Home Loan Program
Wed, Jul 13, 2011
What are Rural Development Loans?
First of all Rural Development (RD) involves actions and initiatives intended to develop the standard of living of the rural areas with the active participation of the local people. These are usually agricultural communities with few inhabitants but have a wide open space available for development like the State of Arkansas, Louisiana, Michigan and others. Rural Development Loans then, are loan grants intended to provide funding for the social and economic development of these areas. There are some requirements as to who would qualify for this loan and what places are eligible for development.
The primary goal of Rural Development Loan is to support essential living facilities like; housing, water and sewer system, health clinics, electric and telephone service. RD also offer technical support to farmers to help them get started and to improve their operations.
How to Become Eligible for Rural Housing Development Loans
One of the many things that are financed by RD is housing loan. This is perhaps the most popular because the majority of the population that wants to avail of RD loan needs a home. Now the question of eligibility has been the constant source of confusions among home buyers, realtors and lenders especially those who are new in the business. As an overview, two things will be discussed here regarding how to become eligible for Rural Development Home Loan.
1. Property eligibility
As the name of the program suggests, to avail of Rural Development Home Loan, your home must be located in the rural area. This includes places like open countries with populations of 10,000 or less. Towns and cities with populations between 10,000 to 25,000 are also eligible under certain conditions.
2. Income eligibility
As a buyer, you should have an adequate and dependable source of income. That being the case, family income must be moderate in order to qualify and, there is no avoiding this because the tax return of buyers will be checked. Family income in this case, includes that of the applicant, the co-applicant and any adult in the family that is earning.
These two will be discussed in detail when we talk about USDA Rural Development Loans.
The USDA Rural Development Loan Guidelines
So you want to avail of the USDA Rural Development Loan but cannot make heads or tails of it. Well this can really be so complicated but to give you an idea, here are the “nuts and bolts” for the USDA Rural Development Loan application qualifications:
1. The location of the house is designated by the USDA. You can find the designated areas in their website.
2. The income of the entire household must be moderate and this will be determined by the USDA. You cannot leave the income of the rest of the household out just to make the income look lower because the USDA will need to see your tax return and that of your spouse. If your income exceeds the threshold, don’t just give up yet. The USDA allows for deduction of elderly members such as your gran, child care, medical expenses for children, students and handicapped members that will be living within the financed property.
3. This is a real no down payment loan. You don’t need any money for down payment to avail of it. This is also not a farmer’s loan because the value of the the property cannot go beyond 30% of the appraised value.
4. The property you are interested in must be in good condition. Make sure that there are no exposed wiring, peeling off paints and some missing bannister because the appraisal used is the FHA type.
5. Another good thing about this loan is that there is no monthly mortgage insurance therefore it is more affordable than FHA in terms of monthly mortgage payment.
6. The seller of the property can pay all the pre-paids and closing cost. In most cases though, the buyer will have to pay for the appraisal report cost which is $450 and this is your only out-of-pocket cost.
7. If the appraised value of the property is more than the purchase value, the difference will be used to pay for all the closing cost and pre-paids because this loan program allows for the closing cost to be rolled on top of the purchase price.
8. You should not avail of this loan as a second house investment because it is not allowed. But there is no restriction for first time home buyer or a move up home buyer.
9. You should have a minimum credit score of 640. It used to be that the USDA will ignore derogatory credits with a score of 640 but they have become less lenient recently.
10. Although there is no maximum mortgage amount, the house must be moderate in size and it is the USDA that will determine what is moderate.
11. Your mortgage is fixed to 30-33 years fixed rate terms. If you cannot afford the 30-year term, this can be raised to 38 years.
These points are basically what you need to know about USDA Rural Development Loans in order to make sense of it. There are two kinds of USDA Rural Development Home Loan; the Guaranteed USDA Rural Development Home Loan and the Direct USDA Rural Development Home Loan. These will be discussed in details below.
What is the Guaranteed USDA Rural Development Home Loan
With the Guaranteed USDA Rural Development Home Loan, your loan is funded by private lenders. This means that in case of default or failure on your part to pay the mortgage, the lender will be paid by the USDA.
This type of loan is intended for those who belong to the low and moderate income families that reside in the rural areas to be able to acquire a modestly priced housing to be used by them as a primary residence. This means that if you already have an existing home and you want to avail of this loan as an investment, you will be denied. But you can use this loan to purchase or repair a newly acquired home.
The advantage of this loan program is that there is no down payment but you should be able to pay the mortgage, taxes and insurance. All you need to do is to prove that you don’t have an adequate dwelling and you cannot obtain credit somewhere else, but you have to have a good credit history. This type of loan is fixed to 30 years.
What is the Direct USDA Rural Development Home Loans
The Direct USDA Rural Development Home Loan, on the other hand, is the type wherein the loan is directly granted by the USDA. This loan which is awarded to eligible applicants can be used to repair, build, renovate, relocate or buy new homes and this is given at affordable interest rates. This can even be used to refinance the house on certain conditions.
Applicants for the direct loan must fall within the low to very low income category. If your income falls below 50% of the Area Median Income (AMI) then you are defined to belong to the very low income category. On the other hand, if your income is within 50% to 80%, then you fall within the low income category.
Like the guaranteed loan, there is no down payment required for this one but you must be able to pay the mortgage, taxes and insurance and you must not be able to obtain credit elsewhere but at the same time, you must have a good credit history.
This type of loan is fixed at 33 years and can be extended to 38 years if you cannot afford the first option.
These are everything you need to know in order to become eligible for Rural Development Loans. These guidelines for USDA Rural Development Home Loans will definitely help you in your endeavor to avail of its benefits.