If you’re planning on moving to a rural area, the USDA Rural Development Guaranteed Housing Loan program can make the buying process a lot easier. Also referred to as Section 502 loans, rural housing loans are insured by the U.S. Department of Agriculture.
According to the USDA, providing affordable homeownership opportunities goes a long way toward promoting prosperity, which, in turn, creates thriving communities and improves the quality of life in rural areas.
In order to qualify for the program, a property must be located in an eligible rural area. Today, many small towns meet the USDA requirements, as do suburbs and exurbs of most major U.S. cities.
While not every lender offers rural housing loans, USDA loans allow for 100 percent financing, in addition to some very friendly terms. Rural housing loans also allow buyers to roll their closing costs into the loan.
To be eligible to apply for a USDA loan, applicants must have very low, low or moderate income. According to the USDA, very low income is defined as below 50 percent of the area median income (AMI); low income is between 50 and 80 percent of the AMI and moderate income is below 115 percent of the AMI. Applicants must be unable to obtain credit elsewhere, yet have an acceptable credit history. They must also be a U.S. citizen or permanent resident.
In addition, families must be without adequate housing but able to afford housing payments, including principal, interest, taxes and insurance (PITI). Qualifying repayment ratios are 29 percent for PITI to 41 percent for total debt.
Direct and guaranteed loans may be used to buy, build, or improve the applicant's permanent residence. Newly manufactured homes may be financed when they’re on a permanent site or purchased from an approved dealer or contractor, in addition to meeting certain other requirements. Under very limited circumstances may homes be refinanced with direct loans.
It’s also important to note that rural housing loans can only be used for homes that are 1,800 square feet or less. In addition, homes can’t have market value in excess of the applicable area loan limit, they can’t have an inground pool and they must not be designed for income-producing activities.
Last but not least, mortgage rates are often as low as comparable 30-year fixed mortgage rates. And because mortgage insurance rates are lower, with a small down payment, USDA loans can often be a better deal.
To learn more about USDA loans, contact our office today.
Published with permission from RISMedia.