Decoding the Rural Development Housing Loan Program

As of 2010, 15 percent of the U.S. population. — i.e. about 46.2 million people — resided in rural counties, spread across 72 percent of the country’s land mass. Average annual household income in these areas can be as low as $35,0000, which is too little to accommodate various family expenditures, let alone cover buying a house and repair expenses. To mitigate this scenario, the United States Department of Agriculture or the USDA, set aside $20 billion for housing loans, to help nearly 140,000 families purchase and renovate their homes in 2014 alone. These rural development loans offer low-interest rates and no down payments, to uplift the living standard of citizens living in rural areas. Let us look at points to consider before applying for a USDA rural development housing loan.

1. Key features

Property owners in rural counties are eligible for a USDA home loan. The difference between these loans and conventional mortgages is that there is no requirement for down-payment for a USDA loan, even when receiving 100 percent financing of the property value. There is, however, an upper-income limit for prospective applicants which varies with counties, and only low to moderate income households are eligible to submit applications to approved lenders. This program helps realize many people’s dream of owning a modest and safe houses with in-house sanitary dwellings as the primary residence. The program provisions a 90 percent loan guarantee to approved lenders, thereby reducing the risk of extending 100 percent loans to prospective homebuyers.

2. Eligibility

Utilization of the USDA home loan program requires the property being purchased to be in a rural area designated by the USDA. Additionally, the applicant must occupy the home, instead of it being an investment property. Regarding income requirements, applicants cannot have an income exceeding the median income in the area by 115 percent, must have a good credit history, and the family must be able to prove that they can afford the mortgage payments and related fees. Repayments of all mortgages under USDA rural development home loan program are spread over a span of 30 years, with interest rates defined by the lender.

3. Usage of funds

The approved funds under this program can be used for -

● Repairs and rehabilitation of an existing dwelling after purchase

● Refinancing of other eligible loans

● Permanently installed instruments and design features to accommodate any household member with physical disability

● Accommodating connection fees for liable utilities such as water, sewer, electricity and gas

● Payment of real estate taxes, due and payable on the property at the time of loan closure

● Establishing escrow accounts for real estate taxes, natural hazards and flood insurance premiums

● Installing necessary household equipment such as ovens, wall-to-wall carpeting, refrigerators, washers, dryers, thermostat equipment.

● Purchasing and installing energy efficient insulation, double-paned glass and solar panels

● Grading, foundation installation, seeding, planting trees, fences and driveways and other site preparation costs

Last few words

USDA rural development home loans are an opportunity for residents of rural counties bound by their meagre incomes and substandard lifestyles. Purchasing a property in a pre-designated rural area doesn’t have to be a compromise, but should be a chance to own the home of your dreams. It’s beneficial, however, to do all the math revolving around the mortgage requirement and the final loan amount before fully investing yourself.