There are few no down-payment loan programs for homebuyers. However, one loan that offers a no down payment loan, in most situations, is a rural development loan from the U.S. Department of Agriculture. Â The USDA offers many different loans that help low and very low-income families obtain safe and sanitary housing, affordably in rural areas.
The loans offered can help you renovate or repair your current home or it can be used to purchase a home. Available in rural areas only, rural development loans offer the single-family housing direct loans to those who meet the criteria. Also called a Section 502 Direct Loan, a rural development loan for a single-family home, offers payment assistance that reduces the mortgage for a short period to help buyers adjust to home ownership.
Are you Eligible for a Rural Development Loan?
Just as with any other loan, your eligibility will be determined by your financial history. You will be required to have a credit score of at least 640 for some lenders. Your eligibility will also be determined by the home you choose to buy and its location. USDA loans are only for homes in rural areas and some locations are ineligible. Your adjusted gross income must be lower than the applicable low-income limit for the area in which you wish to purchase a home. You must also demonstrate the ability and a willingness to repay the loan.
You must meet the following criteria to seek a rural development loan.
- You must be unable to obtain a loan from another resource that offers the terms and conditions that you can meet, practically.
- You must occupy the property as your primary residence.
- You must be without housing that is sanitary, safe and decent for occupation.
- You must have the legal capacity to enter into a loan and meet citizenship or non-citizen requirements for a loan with the USDA.
- The property should be 1,800 square feet or less in size.
- The property cannot have an in-ground swimming pool.
- The property must not have a market value greater than the loan limit for the applicable area.
- The property cannot be for income producing undertakings.
Will you need a down Payment?
Most buyers won’t require a down payment. If you have high asset limits, you may be required to use part of your assets as a down payment.
Can you purchase anywhere you want?
No, you can’t. Generally, rural development loans are for areas with a population of less than 35,000. However, that can be a certain area of a county with a lower population than its more populated areas. You can find eligible areas here where rural development loans may be available for your home purchase if you meet the other criteria.
What is the Term of the Loan and how much is the Interest?
The interest rate of a rural development loan is a fixed rate that is based on current market rates when the loan is approved or closed, with the lowest rate being used. When using a modified interest rate, it can be as low a one percent. Conventional loans are typically for 30 years but a rural development loan can have a term of 33 years and very low income applicants can have as many as 38 years to repay their loan.
Is a Rural Development Loan for first-time buyers, only?
No. A USDA Loan can be used by any buyer who qualifies but if you currently own a home, you will have additional restrictions to qualify.
How can you use the Funds of a USDA Loan?
With a rural development loan, you aren’t limited to the purchase of an existing home. The funds that you borrow may also be used for the following:
- Funds can be used for new or existing residential property that will be used as your primary residence.
- They can be used for repairs of renovations to your current property.
- Funds can be used for repairs to property that you are purchasing.
- Funds can be used to refinance eligible property.
- Funds can be used to install special design features to accommodate those with disabilities.
- Funds may be used for site development. This includes driveways, grading, landscaping, fences and walkways.
- Funds can be used to install energy efficient features.
- Funds may be used for escrow accounts to be used for taxes and home insurance.
- Funds may be used for essential household equipment, including ranges, refrigerators, heating and air conditioning systems that are conveyed with the property.
- Funds may also be used for the installment cost of power, water, sewer and gas for which the buyer is liable when they purchase a home.
Are there Advantages to a USDA Loan?
The greatest advantage to a rural development loan is the opportunity it provides for low income families to become homeowners. The availability of no down payment loans with income based interest rates and long terms that keep payments low are hard to find and not everyone meets the criteria for low down payment FHA Loans or VA Loans. A rural development loan fills this void allowing more families the ability to afford clean, safe housing for themselves and their families.
Is a Rural Development Loan Right for You?
If you meet the above criteria and you are looking for a home in one of the designated areas, a rural development loan may be the most affordable way for you to purchase a home. The USDA rural development loan program helps lenders work with moderate and lower income families in rural areas to make home ownership a reality, for them and their families making this the right loan for you and many others who live in rural areas.
2 Point Highlight
The greatest advantage to a rural development loan is the opportunity it provides for low income families to become homeowners.
With a rural development loan, you aren’t limited to the purchase of an existing home.
