What Is a USDA Rural Development Loan?
USDA Rural Development loans are no down payment mortgages that offer low-cost financing for home buyers. They are for homebuyers who don’t mind living in suburban or rural areas. Over 97% of the United States is eligible for a Rural Development Loan. Any place with a population of 35,000 or less can qualify for a USDA Loan.
If you are ok with purchasing a home outside of the city limits, the Rural Development Loan is a great program.
The USDA loan program is also known as the USDA Rural Development Guaranteed Housing Loan Program by the United States Department of Agriculture. The USDA helps over 100,000 people a year buy homes using their cost-effective program.
It’s important to know when asking what is a USDA Rural Development Loan, to understand how they work.
What Programs Does USDA Offer?
You may have heard about the Rural Development Loan, but did you know that they offer a few different loan programs?
Under their Rural Development Program, the USDA offers four different types of loan programs:
The direct loan program is for low and very-low-income applicants. The program is designed to help them obtain safe, and sanitary housing in eligible rural areas. The USDA provides this by providing the application a payment subsidy in order to help with their repayment ability.
This program is only offered directly through the USDA Rural Development and you must visit one of their local offices in order to get an application. Only homebuyers who are under the lowest income for their areas will qualify.
The Guaranteed loan program known as the Section 502 Guaranteed Loan Program, is an insurance program provided by the USDA. They provide insurance to lenders so that they will make the loan. The reason this works is that the RD loan program requires no down payment.
With the Guaranteed Loan programs, mortgage lenders still make the loans, but the USDA insures them in the event the homebuyer defaults on the loan. Through this program, applicants can purchase, build, or rehab homes in eligible rural areas.
Rural Development Loan
The Rural Development Loan is the most common program and one you are likely familiar with. The Rural Development loan allows you to purchase a home in an eligible area, without having to provide a down payment.
Since the RD loan is 100% financing, it removes one of the biggest hurdles most homebuyers face… the down payment. If you are under the income limit for your area, and you want to purchase a home outside of the city limits, Rural Development can be a great option.
USDA Construction Loan
The USDA Construction loan is a single close construction-to-permanent loan program. This program follows the same guidelines as the Rural Development loan program which allows low to moderate-income homebuyers the opportunity to build their own home.
This program allows you to purchase single-family homes, including eligible manufactured homes and condominiums. The program allows you to finance:
- Purchasing the lot
- Financing reasonable construction costs
- Admin costs
- Contingency reserves
- Inspection fees
- And other items.
USDA Streamlined Assist Refinance
The USDA Streamlined Assist Refinance Loan allows current USDA Home loan borrowers the opportunity to refinance their existing mortgage.
The best benefit of this loan program is that there is no appraisal required and you don’t have to verify your income or credit report either.
If you find yourself in a USDA Loan, and interest rates have fallen, this could be an opportunity to do a quick refinance and lower your monthly payment.
USDA Rural Development Loan Requirements
The USDA has requirements homebuyers must meet in order to qualify for the loan program. These requirements are designed to ensure that potential borrowers are willing and able to repay the loan.
The minimum qualifications for a Rural Development Loan include:
- Must be a US Citizen
- Must prove creditworthiness, usually a 640 credit score or higher for automated approvals. However, some lenders will go down to 580 credit scores for manual underwriting.
- Stable Income, two years of employment history, and no major job gaps.
- Household Income must be less than 115% of the area median income
- You must be purchasing a primary residence in an eligible area
If you have a credit score of 640 or higher and receive automated approval, you will receive streamlined processing of your loan application. For applicants with credit scores under 640, you may still qualify if you meet the requirements for manual underwriting.
Is The USDA Loan Right For You?
If you want to look into more about the USDA Rural Development, we love to help you discover i this is the right loan program for you.
You can learn more about the pros and cons of USDA Loans or if you are ready to apply for a USDA loan you can check out How to Apply for a USDA Loan.
We also have loan experts ready to help you discover what loan options are best for you. You can call or text (337) 252.2441 and speak with them today!