Rural Housing Loans – What are They and How to Get One

Are you familiar with one of the largest home loans in the U.S.?  The USDA (United States Department of Agriculture) Home Loan.  The USDA is an agency within Rural Development.  The USDA Home Loan is backed by the government and widely available.

These loans were created to help low and moderate-income families buy a home with no down payment at a favorable interest rate with one stipulation; the property must be located in a rural area.

Please note that this mortgage has more names than any other type of loan, the USDA Home Loan, Section 502 Loan, Rural Development Loan,  and the Single-Family Housing Guaranteed Loan Program.  Don’t be confused by all of the names as they all refer to this one type of loan type.  For the purposes of this article, we will refer to the loan as the USDA Home Loan.

You can think of it like this, if I ask for a Coke or Pepsi, you know that I’m asking for a brown cola drink, but I could also ask for a pop, soda, cola etc…and you would still know what I was asking for.  The same could be said about the USDA Home Loan.

New homeowners might think that they will have limited options on finding a home since their search is outside of metropolitan areas, but they are oftentimes happily surprised to discover the number of neighborhoods across the country that are surrounded by areas where USDA homes are available.

It always pays to check with your lender for guidance and a list of areas that qualify.

Home loan sign for rural housing loansHere is a quick snapshot of the USDA Home Loan:

  • The loan can finance up to 100% based on appraised value for purchase and refinance transactions which also may include all closing costs
  • Can finance the Upfront Guarantee Fee
  • There is no down payment required for 30 Year Fixed Rate Cash
  • Contribution or Reserves may not be required

What are the requirements?

  • The property must be located in a designated rural area (identified by the USDA Rural Housing)
  • A minimum credit score of 620 is required
  • The subject property must be owner-occupied

There are two main types of USDA Home Loans designed for purchases, guaranteed or direct.

Single Family Guaranteed Loan Program

  • Funded by private lenders, the loan is not made by the Department
  • Guaranteed (insured) by USDA
  • For low to moderate-income households

Single Family Direct Home Loans

  • Loans that are funded by USDA, the loan is between the Department and the potential borrower(s)
  • Loans available for low and very-low-income applicants who are without safe and sanitary housing.

In addition, there are programs aimed at helping homeowners make repairs.  The Single Family Housing Repair Loans and Grants that can offer up to which can offer a loan to $20,000 for repairs with 1% fixed interest rate up to 20-year term.

The USDA Home Loan program was created to help build stable communities, which in turn leads to economic development.

There has been an update to the program effective  October 1, 2016.

USDA Guaranteed Rural Housing Program is implementing a decrease in the Upfront Guarantee Fee and Annual Fee.  This is good news as this decrease applies to all purchase and refinance USDA GRH loans.  It also decreases the upfront guarantee fee from 2.75% to 1.00% and the annual fee will decrease from .50% to .35%.

If you still have questions, please reach out to us anytime.

The Certo Team
55 N. Arizona Place
Suite #103
Chandler, AZ 85225

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