Rural Development loans (also known as RD loans) are loans that offer the mortgage to be up to the appraised value of a property. This can allow cost and appliances to be rolled into the loan, preventing additional cost out of pocket. These items are optional if the property appraises higher than the purchase price. Rural Development does allow for seller concession as well. A Rural Development loan gives the buyer a chance to purchase a home with very limited funds or even zero out of pocket cost.
A Rural Development loan does not charge a monthly mortgage insurance fee, which keeps the monthly required payments lower. There is however a 3.5% funding fee that is rolled into the mortgage, this frees up money monthly for the buyer and keeps out of pocket closing cost down.
Rural Development loans were created to improve the economy and quality of life in rural area. A Rural Development loan is a government backed program that does have some restrictions. These restrictions include property, income, credit, and debt ratios. (The borrower must meet all requirements to be eligible for a RD loan).
The property must be in an eligible area. Each state has specific restricted areas that are broken down by counties. (See the eligible map link). To protect the buyer Rural Development has inspection requirements the property must meet. (See link for property requirements). The Rural Development loan (RD) program also has income limits. The income limits are based on the current median income levels in the area. Rural Development loans were created to help low to moderate income borrowers. (See link for income limits). All income must be disclosed by all parties living in the home, regardless if they are going to be on the mortgage. There are different income limits based on number of individuals living in household and obligated expenses may be deducted (ex: child support). A Rural Development loan must meet credit and debt to income requirements (as does any loan). There are set guidelines for credit and debt ratios. Each RD loan is viewed individually and must fall into the guidelines required by the lender providing the loan.
A Rural Development loan is a wonderful loan give more buying opportunity to individuals that qualify.