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Rural Development Financing guide

Rural Development Financing guide
December 24, 2014

by
Jeffrey R Bucholtz

Rural development loans are loans that are insured by the United States Department of Agriculture to help low to moderate income individuals and families buy single and multi family residencies in Rural Areas.  They define “rural” as a population less than 8,000, and eligibility is shown on a map to include most of Southwestern Michigan, excluding only The city limits of Niles, St. Joseph and Benton Harbor.   There are two types of “RD” financing, direct and insured. 

 

 

The USDA does make direct loans to home buyers, there is a lengthy process to become eligible for direct loans, including the completion of a class, and rigorous loan processing standards.  For this reason most people go for the insured variety of RD financing.

 

 

In my career RD has been a savior, getting deals done when other financing hasn’t worked out.  Luckily the area I cover is eligible for RD financing.   Rural Development is similar to FHA, in that it helps homebuyers to buy a home with little money down, and many times offer very competitive rates.

To determine if you meet the eligibility requirements visit http://www.rurdev.usda.gov, there are many useful links on this site, which is designed to help you.

FHA

 

 

How to Qualify for RD?

 

 

  • Property must be located in a Rural area
  • Must not exceed the maximum income requirements for county, there is a chart here, http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do?pageAction=pageLoad&requestInfo=GuaranteedIncomeLimits&NavKey=incomelimit@12
  • 100% financing, no down payment is required. The loan amount may not exceed 100% of the appraised value, plus the guarantee fee may be included.
  • Guarantee Fee applies: may be rolled into the loan amount.
  • Flexible credit guidelines. Non-traditional credit histories may be accepted.
  • Fixed 30 year interest rates apply. Lenders and applicants agree upon interest rate.
  • Qualifying ratios are 29% for housing costs and 41% for total debt. Lenders may request an exception to exceed these ratios when strong compensating factors are identified.
  • No maximum purchase price. Qualifying ratios and the applicant’s stable and dependable income will determine home affordability.
  • Eligible property types include existing homes, new construction, modular homes, Planned Unit Developments (PUD’s), eligible condominiums and new manufactured homes.
  • Eligible closing costs and lender fees may be included in the loan or paid by the applicant.
  • Gift/Grant Funds/Mortgage Credit Certificates (MCC’s)/Seller Concessions are allowed.
  • Eligible repairs and improvements may be included in the loan.
  • Applicants apply with an approved lender of their choice.
  • Not limited to first time homebuyers.

 

What to do next?

The USDA web site is great, and there is a lot of information there.  Freedom Realty has experience with RD loans, and we can even recommend a few tricks and tips that can make the experience a little easier.

 

First if you are getting USDA direct financing you’ll want to contact the local RD service office, to get the ball rolling.  Get direct financing if you have not money down, are low to very low income,  have the time to meet their education requirements and plan to live in your home for at least 5 years.

 

                               

If you would like to get the insured RD financing contact your local mortgage broker or banker and ask them if they have experience doing RD loans.   Any lender can become RD certified and write RD loans, but it is important  to get someone who has experience with these products, as it can make the process a little easier.  Also make sure your Real Estate agent has experience with the RD product.  As luck would have it Freedom Realty can help you purchase your home with little or no money down with Rural Development financing in Southwest Michigan.

 

 

 

 

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