Rural Development Mortgage

USDA Rural Development Mortgage

What is a USDA Rural Development Mortgage?
USDA rural development mortgages provides low-cost insured home mortgage loans that suit a variety of options. A USDA mortgage loan might be right for you if you want to purchase a home with no down payment and no mortgage insurance.

What Types of Loans does USDA offer?
Currently, there are two kinds of USDA rural development mortgages available for single family households:

USDA Guaranteed Rural Housing Loans
USDA Guaranteed Loans are the most common type of USDA rural development mortgage and allow for higher income limits and 100% financing for home purchases. USDA Guaranteed Loan applicants may have an income of up to 115% of the median household income for the area. Area income limits for this program can be viewed here. All USDA Guaranteed Loans carry 30 year terms and are set at a fixed rate.

USDA Direct Rural Housing Loans
USDA Direct Housing Loans are less common than USDA Guaranteed Loans and are only available for low and very low income households to obtain home ownership, as defined by the USDA. Very low income is defined as below 50 percent of the area median income (AMI); low income is between 50 and 80 percent of AMI; moderate income is 80 to 100 percent of AMI. Click here to see area income limits for this program.

What are the advantages of USDA Rural Development Mortgage versus Conventional Loans?
USDA rural development mortgages offer many benefits and protections that you won't find in other loans including:

USDA Rural Development Mortgages are Credit Flexible
USDA mortgage loan requirements are not totally credit score driven, although it is required to have at least a 620 FICO score to obtain an approval through ENG Lending. USDA Rural Development Mortgage guidelines are written in a way that provides the borrower the benefit of the doubt that there had been, at some point in their past, circumstances beyond their control, and as long as the borrower has recovered from those circumstances in a reasonable manner, they're generally going to be credit-eligible for an USDA rural loan mortgage.

USDA Rural Loans Require No Monthly Mortgage Insurance
A distinct advantage of a USDA Rural Development Mortgage, as compared to a conforming loan, is great interest rates and no mortgage insurance (MI). The daily USDA mortgage rates are usually comparable to a conforming 30-Year Fixed loan.

USDA Rural Development Mortgages Require No Down Payment
USDA Mortgages have no down payment requirement. Other loan programs don't allow this.

What factors determine if I am eligible for an USDA Loan?
To be eligible for an USDA Rural Development Mortgage Loan, your 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 ENG Lending. 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 Residential Loan. 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 mortgage 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? USDA Mortgage Loans require no down payment and they allow for the closing costs to be included in the loan amount (appraisal permitting).

Why choose a USDA Mortgage?

USDA Loans require no down payment.
There are no prepayment penalties for USDA Rural Home Loans.
A USDA Rural Development Loan has no monthly mortgage insurance.
A USDA Rural Development Mortgage is available all rural areas of the country, provided a market exists for the property and the home meets HUD's minimum property standards.
A USDA Rural Housing Loan can be used to purchase a new or existing one family home in rural areas.
USDA RD Loans are offered at terms of 30 years with a fixed interest rate.

USDA Loan FAQ's

What is Considered a Rural Area by the USDA?
Rural areas include open country and places with population of 10,000 or less and—under certain conditions—towns and cities. There is an automated rural area eligibility calculator for USDA home loans at: http://eligibility.sc.egov.usda.gov.

What is the Maximum Loan Amount for a USDA Loan?
There is no maximum loan amount for a USDA rural mortgage. However, it is limited by the appraised value and repayment ability (determined by your household income).

What is the Maximum LTV for a USDA Loan?
The maximum USDA rural loan LTV can be up to 100% LTV plus the Agency guarantee fee.

Can Closing Costs be Financed into the Loan?
Yes, any difference between the contract price and the appraisal value can be used to finance normal closing costs for a USDA mortgage.

What is a USDA Loan Guarantee?
USDA Rural Development Single Family Housing Program serves as a safety net for mortgage lenders. The USDA provides the full faith and assurance of the U.S. government that any financial loss resulting from servicing the loan will be reimbursed in full up to an amount not exceeding 90% of the original loan amount. All loss up to an amount not exceeding 35% of the original loan is fully reimbursed. Any loss amount exceeding the 35% is 85% reimbursed. This leaves the lender only 15% exposed on the loss amount above the 35% of original loan. In the majority of cases, the total loss does not exceed 35% of the original loan and the lenders are fully reimbursed. This guarantee provides lenders an expanded level of protection against losses. The quality of this guarantee allows lenders to easily sell the loans on the secondary market.