The Rural Development home loan is 100% financing, which means there is no required down payment. Instead of depleting their savings for a down payment, borrowers can save that money for any remaining closing costs and fees or other moving expenses. FHA, Conventional, and additional loan programs require at least 3.5% down, so the Rural Development loan is ideal for potential homebuyers who don’t have many reserves to put toward initial costs. The Rural Development home loan also allows sellers to pay up to 6% of the sales price in closing costs which, in many cases, covers all closing costs for both the seller and the buyer. This loan program also permits closing costs to be financed in to the transaction, so the borrower can easily purchase a new home with no money out of pocket.
The Rural Development home loan is valid on any existing, new construction, or foreclosed home residing within USDA’s defined rural areas and any necessary repairs can be escrowed. Although these areas vary from state to state, typically a rural area is considered to be a property in open country. With USDA, however, Rural Development-eligible properties are often on the outskirts of major cities and in smaller suburban communities in addition to open country. USDA provides a search engine that can determine the eligibility of any property nationwide, but licensed real estate agents and mortgage loan officers are also informed of USDA guidelines. There is no maximum purchase price on Rural Development homes, so it is eligible as long as the home falls within a USDA-defined rural area. This feature allows people to afford more than they could outside of rural areas.
Credit requirements are much more flexible with the Rural Development home loan than with other mortgage loan programs. The minimum accepted score is 620, whereas other loan programs require at least a 640 credit score. Borrowers’ past bankruptcies and foreclosures are overlooked after 2 and 3 years, respectively. Borrowers with limited credit histories can also benefit from the Rural Development loan because the primary requirement is that at least two positive lines of credit have been maintained over a 12-month period. In some cases, alternative lines of credit, such as utilities and rent, can be considered for approval. If a borrower’s income is needed for the loan but they have no credit score, they can still be permitted as long as another borrower meets the credit standards. This advantages blended households with more than one financial provider.