Rural Development Loans

What is a USDA Rural Development Loan?

USDA rural development loans provide home buyers with a low-cost mortgage options for people looking to buy a new home. A USDA RD loan might be right for your circumstances if you want to buy a home with zero down payment. If you’re not exactly sure about your current credit score, have concerns your down payment source, or you want to buy a home outside of town, USDA rural development loans can help you achieve your objectives.

What types of Rural Development Loans does USDA offer?

There’s two types of USDA rural development loans offered for single family homes:

USDA Guaranteed Rural Development Loans

USDA Guaranteed RD Loans are the most commonly used kind of USDA rural development loan.  They allow higher income limits and 100% financing. USDA Guaranteed Loan borrowers can have up to 115% of the median household income for the area of the home. MSA area income limits for rural development loans can be seen here. USDA Guaranteed RD Loans have 30 year term lengths that are set at a fixed rate.

USDA Direct Rural Development Loans

USDA Direct RD Loans are less commonly used than USDA Guaranteed Loans.  Direct loans are only available for low and very low income borrowers, as defined by the government. Very low income is defined as below 50 percent of the area median income; low income is between 50 and 80 percent of AMI; moderate income is 80 to 100 percent of AMI. Click here to view area income limits for direct rural development loans in your area.

What are the advantages of USDA RD Loans versus Conventional Loans?

USDA rural development loan requirements offer some benefits and protections that aren’t included in other mortgage loans including:

 USDA Rural Development Loans have some credit flexibility
USDA mortgage loan requirements aren’t totally driven off of credit scores, though a minimum 620 FICO score is required to get approved by most lenders. RD mortgage guidelines give applicants some benefit of the doubt if there had been some circumstances beyond their control in their past. If the borrower has reasonably recovered from those circumstances, they’re usually going to be credit-eligible for rural development home loans.

 USDA Rural Loans have low monthly mortgage insurance
Another advantage of USDA Rural Development home loans, as compared to conventional conforming loans, is not only great low interest rates but also lower monthly mortgage insurance (MI). Interest rates are so low that the daily USDA rural development loan rates are often comparable to conforming 30-Year fixed rate loans.

 USDA Rural Development Mortgages are no down payment loans
USDA rural development loan guidelines have no down payment requirement.  That is rare these days and can be very helpful when you ask yourself “how much mortgage can I afford“.

What factors determine if I am eligible for a Rural Development Loan?

To be eligible for an USDA Rural Housing Development Loan, your projected monthly housing costs (mortgage principal and interest, property taxes, and insurance) must meet a specified percentage of your gross monthly income (29% ratio). Your credit background will be fairly considered. At least a 620 FICO credit score is required to obtain an USDA approval through most lenders. USDA rural development loan eligibility states that you must also have enough income to pay your housing costs plus all additional monthly debt (41% ratio). These ratios can be exceeded somewhat with compensating factors. Applicants for loans may have an income of up to 115% of the median income for the area. Maximum USDA Guaranteed Loan income limits for your area can be found at here. Maximum USDA Direct Loan income limits for your area can be found at here. Families must be without adequate housing, but be able to afford the mortgage payments, including taxes and insurance.

See more on USDA Mortgage Requirements.

What is the maximum amount that I can borrow?

The maximum amount for an USDA home loan is determined by:

Maximum Loan Amount: The is no set maximum loan amount allowed for an USDA rural development loan qualifications. Instead, your debt-to-income ratios will dictate how much home your can afford (29/41 ratios). Additionally, your total household monthly income must be within USDA allowed maximum income limits for your area. Maximum USDA Guaranteed Loan income limits for your area can be found at here.

Maximum financing: The maximum USDA Rural Loan amount will be 102% of the appraised value of the home (100% plus the 2% USDA rural development loan guarantee fee).

How much money will I need for the down payment and closing costs?

Are you curious what is the minimum down payment for an USDA Rural Loan? Rural Development Loan guidelines require no down payment and they allow for the closing costs to be included in the loan amount (appraisal permitting).

What property types are allowed for USDA Rural Development Loans?

USDA Rural Development property eligibility guidelines require that the property be Owner Occupied.  They also allow you to purchase condos, planned unit developments, manufactured homes, and single family residences.

Can I get an USDA Rural Development Loan after bankruptcy?

Criteria for USDA loan approvals state that if you have been discharged from a Chapter 7 bankruptcy for three or more years, you may apply for an USDA rural development home loan. If you are in a Chapter 13 bankruptcy and have made all court approved payments on time and as agreed for at least one year, you are also eligible to make a USDA Loan application.

Learn more about USDA Loans.

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