The Home Buyer's Korner

Information presented should be used for educational purposes only.

July 18th, 2014

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USDA Rural Development~What is it?

USDAThe USDA home loan program is a great niche product serving our smaller communities and rural areas around the country. Most people call them “USDA loans”, “Rural Housing Loans”, “Section 502 loans” or for those of use in the business for many year the old “Farmers Home Loan”.

USDA loans are insured by the U.S. Department of Agriculture and the program’s greatest feature is it DOESN’T require a down payment, while offering up to $10,000 for needed repairs at affordable mortgage rates.

USDA loans are similar to other common mortgages like FHA and VA. The repayment schedule is typical,   closing costs are standard and there are never prepayment penalties to pay.  Where USDA loans are unique is its down payment requirements with some of the easiest approval standards.

Rural Development loans can be used by first-time buyers and repeat home buyers alike and home buyer counseling isn’t required, although attending a course is always a good idea.

First time home buyers always have challenges in front of them; finding a real estate agent, experience to assist them in the house hunting; finding a mortgage lender willing to spend the time with you to explain the program, in addition to getting moved in.  Hopefully, our blog helps you address some of them. 

Under the Guaranteed Loan program, USDA Rural Development guarantees loans made by private sector lenders. A loan guaranteed through USDA Rural Development means that, should the home owner default USDA compensates the lender for any lose after foreclosure, that’s the official jargon. In short, it means you can buy an eligible house without a down payment. You’ll still need cash-to-close for things like funding your escrow account, but that adds up to a lot less money when there’s no down payment. 

Why does USDA rural development work well for buying your first home? Here’s a few. 

  1. I mentioned Rural Development doesn’t have a down payment requirements and one of only two 100% financing options available right now offering ZERO DOWN PAYMENT; the other being a VA mortgage loan which requires the borrower have Military Veteran status. Of course, 100 percent financing means you don’t need a down payment (buyers may need cash at closing for other costs like inspections and insurance though). Your real estate agent and mortgage can help explain this better and negotiate a sales contract that might even eliminate most or all of these costs, so get the facts by reaching out to one of our community members.
  2. You get to look for a house that could have a big yard. While “rural” doesn’t have to mean “out in the country and generally communities with populations of 35,000 or less are eligible for USDA Rural Development financing.
  3. “Property type” allows for single family dwellings, town homes, condominiums, as well both manufactured and modular housing. It’s often tough to finance a modular or manufactured home and many times if you do the terms aren’t nearly as good as USDA Rural Development financing.
  4. Minor repairs are allowed in the financing. USDA Rural Development allows up to $10,000 in many cases and that means a lot when thinking about the alternatives, like financing the repairs with a high interest rate credit card.
  5. No pre-payment penalty and who knows, you may end up with cash on hand. If you do and pay it off early, you won’t be punished for it.
  6. No limit on seller concession. This means the seller can pay all or part of your closing costs – and there is no limit to the amount, like other loan programs. This is great for first time home buyers with very little liquid assets available.

 

 

 

Related Post

USDA New Rural Housing Maps

USDA Rural Development Homes

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