USDA Home Loan Program: Helping Buyers Afford Rural Homes
by Shawn Clayton
on Friday, November 10th, 2017 at 10:05am.
The USDA home loan program is one of the best-kept home financing secrets around. The program, also known as the Rural Development Loan or Rural Housing Loan, provides loan guarantees on mortgages for homes that meet the geographic eligibility requirements. The program functions much like other government housing programs: approved banks and lending institutions make the actual loans while the government provides insurance against default. This insurance makes lenders more willing to lend to buyers whom they may view as potentially risky investments.
USDA Home Loans: Eligibility Requirements
The United States Department of Agriculture began this program to promote home ownership in the rural areas of the country but do not let that fool you. Much of the United States, outside of major metropolitan areas, falls into areas of geographic eligibility. Many suburban areas, such as Harvey Cedars, may be USDA certified.
The second step toward establishing eligibility is meeting the program's income requirements. The program, intended to help low- and very-low income individuals and families attain home ownership, sets income limits that vary by location. Buyers must demonstrate a willingness to repay the loan and must understand the credit obligations involved in obtaining a mortgage. Buyers can establish eligibility by location and income at the USDA's Rural Development Eligibility website.
The USDA home loan program's most significant benefit is the no down payment feature. Traditional forms of financing typically require a down payment between 3 and 20 percent of the home's purchase price. Even FHA loans require buyers to have at least 3.5 percent down. Traditionally, the lack of a down payment has been a barrier to home ownership. The USDA Guaranteed Loan program eliminates that barrier.
The USDA home loan program may not be the best choice for financing if the buyer has an adequate down payment to qualify for other types of financing. Additionally, buyers whose income exceeds the program limits or who wish to live in a luxury home in a large city should seek other financing options.
USDA Guaranteed Loans: Financing an Owner-Occupied Residence
The USDA Guaranteed Loan program requires that the home purchased be the buyer's primary residence. The loan funds can be used to pay for the property and all applicable closing costs and fees. Current homeowners who are otherwise eligible can also use the program to refinance an existing home mortgage. Buyers cannot use the loan guarantees and favorable mortgage term to purchase investment properties.
USDA Guaranteed Loans: Making Home Improvements
The USDA Guaranteed Home Loan program may also be used to fix up a property. The funds can be used to renovate an existing property to make it habitable. Essential household equipment such as ovens, stovetops, refrigerators, and washer and dryers are acceptable expenses. Flooring, plumbing, roofing, and mechanical improvements are also allowable expenses. Buyers with physical disabilities can also use the funds to install equipment or make renovations to make the home accessible.
USDA Direct Loans: Obtaining Safe Housing
Individuals and families who do not currently have safe housing and are unable to obtain financing from other sources may qualify for a USDA Direct Loan. The goal of this program is to quickly get interested buyers into housing that is safe and habitable. Unlike most government loan programs, their direct Loan program works to directly lower the cost of housing through a subsidy.
Buyers interested in exploring the USDA's home loan programs should contact a real estate professional to begin the home buying process. An experienced real estate professional can assist buyers in understanding the requirements of a variety of home financing options.