USDA Rural Development (RD) mortgages are backed by the U. S. Department of Agriculture. This program is designed to allow more people with low or moderate income in "rural areas" of the country to own their home. While it's targeted to low and moderate income borrowers, many people are surprised to find they are eligible for an RD mortgage loan. This is available for first-time or repeat home buyers.
These loans are for 30 years, but can be paid off early without penalty. You may not have to have a down payment. The maximum loan amount is dependent on your income; however it cannot exceed $766,550 as of January 1, 2024.
Benefits of an RD mortgage include:
• No Down Payment - An RD mortgage loan can provide 100% financing. This is better than Conventional or FHA loan programs. Even if you don't have any money for a down payment, this mortgage may still make it possible for you to purchase a home.
• Interest Rates - Since these mortgages are backed by the USDA, borrowers may receive an interest rate lower than conventional mortgage rates. The rate won't be adjusted based on the amount of your down payment like the rate on a conventional mortgage.
• Flexible Credit Score Guidelines - There is more flexibility with credit history making it possible for borrowers with limited credit or some credit issues to qualify. It is also possible to use alternate payment information like history paying rent, utilities, insurance or cell phone if the borrower's credit history is limited.
• Lower Ongoing Costs - USDA requires an annual fee. But the annual cost is one low rate - just 0.35% of the loan's remaining principal balance, so the amount goes down each year. This fee is less than the annual fee for an FHA loan. Although it is charged annually, only a portion is added to each mortgage payment. This fee is required for the life of the loan. All RD mortgage loans have a 1% upfront fee regardless of LTV. You have the option of rolling that cost into your loan so you won't have to bring as much money to closing.
To Qualify for a RD mortgage loan:
There are some specific things to keep in mind.
• There are income limits you must meet that vary by county and state. Click here to find out more about these limits.
• The home you purchase must be in an eligible area. Click here to see if your address is eligible. Most cities and towns with a population of 20,000 or less will qualify. Larger cities may qualify if they have rural characteristics as defined by USDA.
• The property you are purchasing will be appraised to determine if it's worth the amount you are paying. The appraiser will also verify the home is safe and livable and meets all USDA RD minimum property standards. If any issues are noted, they will need to be fixed prior to closing your loan.