The USDA Rural Development Home Loan is a flexible zero down payment government guaranteed program that is growing in popularity. It is designed to promote homeownership in rural communities for residents with low to moderate incomes and limited savings for a down payment. A common misconception about the USDA loan program is that it is only for farmers. You will find that just outside most metropolitan areas there are many suburban neighborhoods that qualify for this program.
The Section 502 Guaranteed Loan is the most common type of USDA rural housing loan. Amazingly, this loan will actually lend up to 102.04% of the home's appraised value and even allow the buyer to include closing costs in the actual loan (appraisal permitting). All USDA Guaranteed Loans carry a 30-year term with a low fixed rate.
USDA Home Loan requirements are not entirely credit score driven, although RANLife Home Loans requires a 640 mid-score or better, USDA Home Loan guidelines will disregard some derogatory credit marks provided there is an acceptable explanation.
Applicants may never borrow more than the Area's Loan Limits. Talk to a RANLife USDA Specialist to learn the limit in your area.
The home must be owner occupied (no investment properties). All single family houses, condos, and planned unit developments e.g. townhomes, are eligible. Modular homes ARE eligible, but NO MANUFACTURED OR MOBILE HOMES.
To qualify for this loan program, there are two notable requirements that differentiate this program from an FHA or VA loan program.
USDA RD Home Loans have no down payment requirement. FHA requires 3.5% down and conventional loans require 3% down.
Qualifying Income: It is important to note that the USDA uses two types of income for qualifying.
Household income is the combined adjusted gross income of all people living in the home, even if they are not on the home loan application. This amount cannot be higher than the county limits.
Repayment income is income from the actual loan applicants and determines the DTI (debt-to-income) ratio. Deductions can be made for each child under the age of 18 and/or full-time student over the age of 18.