The United States Department of Agriculture has a program called Rural Development, in which they are committed to helping improve the economy and quality of life in rural America. They promote economic development by supporting loans to businesses through banks, credit unions, and community-managed lending pools. They offer technical assistance and information to help agricultural producers and cooperatives get started and improve the effectiveness of their operations. They provide technical assistance to help community empowerment programs. How cool is that? But the coolest of all is that they help rural residents buy or rent safe, affordable housing!
Why are we even talking about this?
Ok. Ok. Let me get to the point. So, the residential rural development loans that USDA offers are the second most affordable loan (the first being VA). They offer 100% financing. That means no down payment. They also allow the seller to pay closing costs. The FHA loan comes in close because they only require 3.5% down. Rural development also offers cheaper monthly mortgage insurance fees than FHA and guess what? They’re about to get even cheaper! The loan requires an upfront guarantee fee and a monthly fee, both for mortgage insurance. The purpose is to simply “guarantee” the loan so it reaches lenders guidelines. This means if a borrower were to default on their loan, the lender gets to keep these fees for compensation on the loss.
As of now, the upfront fee is 2.75% of the loan amount and the annual fee is.50% paid in 12 equal installments and included in each mortgage payment. On October 1st, 2016, the new upfront fee will drop to a measly 1% and the annual fee will drop to .35%. So, how do the numbers play out? For a sales price of $200,000, not only would you save $3585 in closing costs, but you would also save $43 per month for as long as you have the loan. Over 10 years, thats a total savings of $8,745!
Ok, I like it. Now, how do I qualify?
As with every loan, you do have to qualify. There are certain income guidelines you need to meet, you have to occupy the property as your primary residence, and you must be a U.S. citizen, foreign national, or qualified alien. Every year, home buyers opt for the more expensive FHA loan because they don’t think they qualify. Please, do not trust the calculators online. This can be tricky math and it can be different based on location. So go see your lender and have them determine if you qualify. If your lender doesn’t deal with rural development loans, go somewhere else. Just make sure to find a local, trustworthy lender that you can talk to face to face.
Ok I qualify. Now, how do I find a home?
With rural development loans, not only do you have to qualify, but so does the home. It must qualify by location and condition. Most people think you have to be way out in the hills with the moonshiners to qualify but you don’t. In fact, a full 97% of U.S. land mass is eligible for the USDA loan program. You can find something right outside of major cities or, in some cases, entire towns are rural development because the population is below the line. The house must also meet quality requirements. Everything must be functioning, no broken windows, and things like that. You can find more details on quality requirements and an address eligibility lookup on their website: http://www.rd.usda.gov/
Already have a Rural Development loan?
If you already have a rural development loan and have been considering refinancing, now is the time. Your debt to income ratio isn’t calculated, no maximum loan amount limits, no new appraisal or home inspection, and the closing costs you do have can be included in to the new loan. Of course, there are requirements for everything. You must have paid on time for the past 12 months, you must be below the income limits, and the original loan must have closed 1 year prior to the refinance request.
Now that you know all about rural development loans, I encourage you to go visit with your lender and see what your options are. Remember, you can’t take advantage of the new, low fees until after October 1st, 2016. But the great thing is, we know for sure this won’t change for a full year, so you don’t have to rush out and find a home right away. No need to settle for something you don’t necessarily want. Take your time, just make sure you find something before October 1st, 2017.
Good luck, Ya’ll!!!
Published by Kearsten Meads