The USDA Rural Development Home Loan is a flexible zero down payment government guaranteed program that is growing in popularity. It is designed to promote homeownership to residents in rural communities with low to moderate incomes and who have limited savings for a down payment. A common misconception about the USDA loan program is that it is only for farmers, but you will find that just outside most metropolitan areas there are many suburban areas that qualify for this program.
The Section 502 Guaranteed Loan is the most common type of USDA rural housing loan. Amazingly, this loan will actually lend up to 103.5% of the home's appraised value and even allow the buyer to include closing costs in the actual loan (appraisal permitting). All USDA Guaranteed Loans carry a 30 year term with a low fixed rate.
USDA Home Loan requirements are not entirely credit score driven. USDA Home Loan guidelines will disregard some credit mishaps with an acceptable explanation.
The home must be owner occupied (no investment property) and all single family, condos and planned unit developments. NO MANUFACTURED OR MOBILE HOMES.
You must be discharged from a Chapter 7 bankruptcy for at least three years. If you are in a Chapter 13 bankruptcy and have made all court approved payments on time and as agreed for at least one year, you are eligible to make an USDA loan application.
One of the biggest advantages of a USDA RD Home Loan is a the very low mortgage insurance (MI) requirement. This alone will potentially save you $50-$250/mo depending on your loan size.
No. There are no down payment requirements.
To qualify for this loan program, there are two notable requirements that differentiate this program from an FHA or VA loan program.
1. Location: The home must be located in a designated rural area.
2. Income Limits: Must meet USDA adjusted annual household income limits, a maximum 115% of the median income for your area. Meaning your total combined household income cannot be more than this amount. If your income is slightly over these amounts, there are little known deductions that can be used to reduce your qualifying gross household income and help you qualify. Such as:
- Disabled or handicapped individuals who are not the applicant or co-applicant.
- Documentable childcare expenses for children 12 years of age or older.
- Documentable medical expenses for family members 62 years of age or older.
- Attendant care expenses.
- Deduction for each child under the age of 18 and/or full time student over 18.
Qualifying Income: It is important to note that USDA uses two types of income for qualifying.
- Household income is the combined adjusted gross income of all people living in the home, regardless if they are applying for or will be on the mortgage. This amount cannot be higher than the county limits.
- Repayment income is income from the actual loan applicants and determines the DTI (debt-to-income) ratio. Deduction for each child under the age of 18 and/or full time student over 18.
Rural Housing Purchase Benefits
- 100% Financing
- Low Monthly Mortgage Insurance
- Using an USDA Approved Lender usually means lower closing costs
- Low fixed monthly payments
- Low mortgage interest rates
- Never a pre-payment penalty
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