Why? It can be a good option if you:
- have limited resources (no down payment required)
- do not want to live in a large, urban area.
USDA loans are backed by the U.S. Department of Agriculture and are intended to help people living in low- to moderate-income households put down roots in certain rural and suburban locations. It makes sense, then, that the main requirement is that the property must fall within certain geographical areas, outside the city limits of major metropolitan centers.
As long as you qualify, you can build, rehabilitate, improve or relocate a dwelling as your primary residence in eligible rural areas. And you can borrow 100 percent of the appraised value. That means you do not have to come up with funds for the down payment, which can be a challenge for many homebuyers.
If you think this means you'll be living down a long winding country road with the closest neighbor a mile away, you're mistaken. It's certainly an option if that's what you're looking for, but many areas that fall under the Rural Development umbrella are actually more suburban than you'd expect. As an example, rural development in northern Indiana covers most areas except Gary, South Bend and Fort Wayne. In Ohio you couldn't use this loan to buy a home in Columbus, Cleveland or Cincinnati but many other villages, towns and areas are eligible.
While the loans are backed by the U.S. Department of Agriculture, they don't actually provide you with the home loan. You apply and receive your loan from approved lenders (such as Amerifirst Home Mortgage). The main benefit to you is that you can get low mortgage interest rates, even without a down payment. Be aware, however, that if you put little or no money down you will have to pay a mortgage insurance premium. The loan term is a 30-year fixed-rate mortgage.
Pros of the USDA Rural Development Loan
- No down payment option (100% financing)**
- No cash reserves required
- Flexible credit and qualifying guidelines
- Seller can pay closing costs
- Low fixed interest rate
- No pre-payment penalty
- Ability to finance repairs and closing costs into loan
- Good for purchase or refinance
- You can build a home with the loan
Cons to the USDA Rural Development Loan
- Geographic restrictions
- Mortgage insurance included (may be financed into loan)
- Income limits
- Single family, owner occupied only - no duplex homes
If you're wondering if you and your proposed property qualify for a USDA Rural Development loan, contact a branch close to you. Or maybe you have a few questions about the loan process and just want to have a friendly conversation. Just click the button below and we'll get back in touch. We're always happy to help!
**Zero down payment and other figures shown are for informational purposes only and are not intended as an advertisement or commitment to lend. Not all borrowers will qualify; contact us for a specific quote and more information on fees and terms.