The United States Department of Agriculture (USDA) has a specialized rural housing loan program that you may have heard of, but are you familiar with it? Here are 10 questions that you should ask yourself about the USDA program that may save you time, money, and headache when it is time for you to buy your next house.
1. Usually borrowers have to qualify for a loan; why does the USDA Rural Loan Program qualify properties?
The purpose of the USDA Rural Loan Program is to bring commerce and residential business to areas that the government deems are in need of development. To this end, the USDA keeps a map of the country on its website with eligible areas highlighted. Any property within that area is usually an eligible property. 97 percent of the land mass of the United States is eligible in some way on these maps.
2. Do the USDA maps ever change?
The last change was supposed to take place in October of 2014; however, it was pushed back for some reason. Currently, the maps that show real estate agents and borrowers where to find the eligible areas are running off of census statistics from the year 2000. The maps can be updated at any point in time; however, they are usually updated in October. The USDA has put out an unofficial statement saying that the maps will probably change in 2016, and if not, in 2017.
3. Is the USDA Rural Loan Program only for rural areas?
If you can believe it, the Rural Loan Program actually helps people get into houses in many environments, not just rural environments. The rules dictate that the population of the municipality must be less than 35,000. Other than that, there are very few considerations in terms of lifestyle when it comes to qualifying a property for a USDA loan.
4. What conditions do the properties have to fulfill?
Aside from being in one of the eligible areas, the property must also pass muster with the Department of Housing and Development (HUD). The property cannot be used for any commercial purpose; as such, mixed unit properties and commercial rental properties are never eligible for a USDA loan package. The USDA gives priority to people who are looking for a primary residence, and the resident must live in the property in order for it to remain eligible for the loan. There are also four inspections that must take place before a property can be deemed eligible.
5. What areas outside of rural areas are eligible under the current USDA program?
It is difficult to say what areas are eligible now as the maps could change at any time. Suffice it to say that if you are looking at an area that is deemed eligible by the maps now, you should jump on any opportunity there before the maps change. The main characteristic that you must keep in mind is the population of the area. If an area has less than 35,000 and experienced growth between 2000 and today, then it may not be eligible when the maps change. There are many areas right beside large metropolitan cities in New York and California that are currently eligible; these places are more suburban than rural.
6. What are the advantages of a USDA Rural Housing Program Loan?
You do not have to maintain a high credit score to be eligible, and your financial records can be much less strident as well. The USDA regularly approves borrowers with a credit score of 660, although borrowers with scores of 740 or more will definitely get the best rates.
7. Do I have to have a down payment with a USDA loan?
The down payment may be waived with the USDA, and with it, the requirement to pay private mortgage insurance (PMI). This can save a borrower 20 percent of the total home value up from plus another one to two percent per year on the insurance.
8. What are the borrower requirements other than the 660 credit score?
You will need to show an ability to pay a mortgage consistently. The USDA will ask for a substantial amount of financial paperwork including pay stubs for at least six months, tax forms from two years back, and possibly bank statements if you are self employed.
9. What about closing costs?
The USDA may actually allow you to push many of the closing costs onto the seller, because it is meant to help people not only get into housing, but also renovate it. You may be able to take advantage of additional funding up to $35,000 if you qualify for the renovation loan and provide the USDA with the proper paperwork.
10. Why would I skip out on a USDA loan?
If you want to create a rental income from your property, then you would not be able to use the USDA to finance it. If you ever wanted to convert your property into a commercial property, you would also have to skip over the loan.
2 Point Highlight
The purpose of the USDA Rural Loan Program is to bring commerce and residential business to areas that the government deems are in need of development.
The USDA will ask for a substantial amount of financial paperwork including pay stubs for at least six months, tax forms from two years back, and possibly bank statements if you are self employed.
