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U.S. Department of Agriculture has affordable housing programs that help American families achieve the American dream. The Rural Housing Loan program allows qualified applicants to purchase a home with no money down in Rural Housing-eligible locations. Since its inception in the 1990s, this has become one of the most popular loan programs available due to its affordability and lenient requirements. An easy way to see if you prequalify is to determine whether or not you meet the following criteria:

1. You live in a Rural Housing-eligible area or desire to move. Rural areas aren’t just considered to be open country and small communities. In fact, 97% of the country falls into a Rural Housing-eligible area. USDA aims to strengthen and grow rural communities by offering affordable housing. You can easily check the eligibility of any home on USDA’s website.
2. You don’t make too much money. Rural Housing was created so that lower-income families can afford to buy their own homes. Income guidelines are based on the average income in a particular geographical area, so it depends on where you live or wish to live. The average U.S. yearly per capita income is $27,000, so many people fall within the income guidelines. Income guidelines also depend on the amount of people in your household. If you don’t make enough money to qualify for the loan, you may also add co-borrowers.
3. You have a credit score of 620 or above. The Rural Housing credit requirements are much more forgiving than other mortgage loan programs which require a 640 or above. As long as you’ve had 2 positive lines of credit on your report with 2 years of solid employment and have no outstanding debt in collections, you may qualify for a loan. Rural Housing also allows past bankruptcies and foreclosures—bankruptcies after 2 years of discharge and foreclosures after 3 years. Other loan programs require up to 7 years before they will consider a borrower with that credit history. If a borrower doesn’t have the necessary lines of credit, alternative line of credit such as utilities and rent may be considered.
4. You can prove you are able to pay a monthly mortgage payment. Even though the Rural Housing program requires no down payment, there are closing costs and fees that are due at closing. Fortunately, these costs and fees can be financed into the loan so that no money is due out of pocket at the time of closing. The is great for borrowers who need cash after closing for any home improvement, utilities, moving expenses, or other costs that may arise. When the Underwriter reviews your file, he/she will determine whether or not your income will allow you to affordably incur a mortgage loan. Your debt-to-income ratio must be around or below 41%. It is a good idea to pay down any large credit card debt to below 50% of the limit and eliminate any small debt that may affect your DTI.

USDA has risen to the top of the current available mortgage options because it makes homeownership affordable. Unlike prior generations of home loans where years of saving for a down payment still left a homebuyer saddled with huge monthly mortgage payments, USDA gives homebuyers the freedom of saving their money for other important expenses that come with purchasing a home. If you’re deciding between loan programs, consider why USDA may be the right choice for you.

1. USDA requires no down payment. This is especially appealing to first-time homebuyers who may not have the savings to put down for a new home but who are financially capable of paying a mortgage. Recent college graduates who have just begun their careers likely haven’t been building a substantial savings while in school. With USDA, these new professionals can purchase an eligible home for their future families with no money down instead of throwing away hard-earned cash on rental properties.
2. USDA rates are the lowest of the mortgage programs. Buyers can feel confident with choosing USDA because it is government-guaranteed and mortgage rates are fixed at the lowest available at the time of home purchase. The USDA mortgage rates were lowered in October 2016 and they are evaluated every year to ensure they remain low and affordable for buyers. Because the mortgage and MI rates are lower, USDA mortgage payments are often low, especially since buyers put no money down and loans with low or no down payments are considered risky for lenders.
3. Only 3% of the nation falls in a USDA-ineligible area. This means it is possible for almost any qualified potential buyer to secure a 100% financed home. The USDA wants to strengthen our economy and grow rural communities, so offering a 0% down rural home loans help them to achieve this goal. You can visit USDA’s website and enter a desired home’s address to check its USDA eligibility.
4. USDA homes can be refinanced. Although this may not seem important to first-time homebuyers, having the ability to refinance your home is a great option. Since the USDA mortgage rates are reevaluated each year, there is always a possibility that the rate you secure at closing may eventually decrease or change. A buyer is able to refinance their home into a lower rate and different terms after owning for 12 months. USDA also allows cash-out refinances, which means a homeowner can take the equity they’ve put into their home and use it for other expenses such as home improvements.
5. USDA approves borrowers with credit scores as low as 620. Other loan programs require credit scores of at least 640. Low credit scores aren’t always the result of poor financial management. Sometimes job loss, unexpected medical expenses, and other life changes can impact your credit score. As long as you have two active tradelines, an acceptable debt-to-income ratio, and a 2-year job history, you may still qualify for a USDA loan. Borrowers who have limited credit histories may also qualify with alternative tradelines and a steady work history.

Typically any mortgage with less than a 20% down payment will require a form of Mortgage Insurance (MI). MI protects investors in case a homeowner defaults on their mortgage. Since USDA Rural Housing loans need no down payment, MI is required. Because the USDA Rural Housing loans are government-backed, the MI rates are usually lower than comparable FHA and Conventional loans because lenders have more protection. This is important because lower monthly MI fees help keep buyers’ monthly mortgage payments lower. USDA Rural Housing loans are committed to making homeownership possible for lower-income families nationwide and low rates mean lower, affordable mortgage payments.

The USDA lowered its MI rates in October 2016. Currently, there is a 1% upfront fee paid at closing for purchases and refinances and a .35% annual fee for all loans, based on remaining principal. The upfront MI fees are not paid as cash but are instead financed into the loan so they can be paid out monthly. In contrast to USDA Rural Housing MI rates, FHA has a 1.75% upfront fee and .85% annually. Even Conventional loans average above a 1% annual fee. The USDA rates are usually lower than other loan programs’ MIs.

USDA Rural Housing mortgage rates are also usually lower than other loan programs. Mortgage rates are based on mortgage-backed security bonds, so a borrower can’t choose their rate. It is set for them depending on what the going rates are at the time of the home purchase. USDA Rural Housing rates are guaranteed by the U.S. Department of Agriculture so there is less risk than FHA and Conventional loans. This allows for lower rates. The only comparably lower mortgage rate is available through the Department of Veteran Affairs, and because only veterans are eligible, the USDA Rural Housing loan is more widely available to potential homebuyers.

The USDA Rural Housing loan’s rates are nationally-monitored and mandated, so regardless of a homebuyer’s geographical location, their rates will all be the same and as low as possible. Despite being called the “rural housing loan,” 97% of the US is USDA Rural Housing-eligible. The USDA’s website allows anyone to enter a desired home address to determine whether or not it is in an eligible area. Unless the home is in a metropolis or other densely populated city, it will likely fall in a rural area. The only factor in acquiring a USDA Rural Housing loan that may be disqualifying for some potential borrowers is exceeding income limits. The USDA Rural Housing program is targeted toward making homeownership possible for lower-income and rural families, so families making a certain amount of money will not qualify. Each state has different income guidelines based on household size and location.

The Federal Housing Administration (FHA) loan has been widely popular due to its lower down payment of 3.5% which, for many buyers, is more attractive than the 10% or 20% down payments required of other mortgage loan programs. But there is an even better option for potential homebuyers: 0% down with a United States Department of Agriculture (USDA) loan. Thousands of Americans have been able to purchase new, existing, and foreclosed homes with no money down. The USDA loan is government-backed and has provided down payment assistance to thousands of people nationwide. It is tailored to lower-income residents, but many households with multiple family members still qualify. The income guidelines are based on the desired geographical area and number of people in a household. The USDA loan is only valid on residences in designated rural development areas, but these areas are often small communities of less than 35,000 residents and on the outskirts of larger cities. Many people are able to purchase a home within a rural area and still easily commute to nearby metropolitan areas. The USDA loan doesn’t have a maximum purchase price, so buyers can purchase any home in a qualifying area, as long as they meet all other requirements and plan to occupy it as their primary residence.

The FHA loan is appealing to buyers who want a lower down payment, but the credit requirements are much more stringent than USDA’s. With FHA, a borrower’s credit score must be above a 640 with other conditions like specific tradeline duration and debt-to-income limits making it more difficult to qualify. USDA loans only require a credit score of 620, so borrowers with negative histories on their credit reports can still get a loan. Foreclosures and bankruptcies are even forgiven after 3 years. Borrowers with no credit score can have up to three co-borrowers on their loan if at least one borrower meets minimum credit requirements. The most important qualifications for a USDA loan are consistent employment for a 2-year period and two positive, active tradelines on their credit report for 12 consecutive months. If a borrower doesn’t have traditional tradelines, alternative tradelines such as utilities can be considered, which isn’t allowed with other loan programs.

The USDA loan is the best loan option for those who want as little up-front costs as possible. FHA loans are more affordable than many other mortgage loan programs, but the USDA loan is 100% financed, so borrowers owe no money down. The USDA loan also allows buyers’ closing costs to be financed into the purchase price, so they can close on their homes with no money out of pocket. USDA loans give thousands of people the opportunity to buy and afford their own homes, despite limited incomes and negative past credit histories.

Nearly half the state of Arkansas falls within the USDA’s rural location guidelines which means there is substantial underdeveloped and vacant land with economic potential in the state. The USDA Rural Development home loan supports the industrialization of small, rural communities and promotes the development of new rural areas by assisting Arkansans with home purchases. Small communities across the state are struggling with rising taxes and depleting populations because many lower-income families can’t afford safe, permanent housing so they move to larger cities where they can obtain cheaper, temporary rental properties with little to no initial costs. The USDA Rural Development home loan makes it possible for these citizens to buy homes and strengthen and grow rural communities statewide.

The USDA Rural Development home loan is intended to give lower-income families a break by making it possible to purchase a home with no money down. To qualify for this loan, a borrower’s income must not exceed a certain amount based on location and household size. In Arkansas, the average per capita income is $22,007 which is below the national average. This means the majority of Arkansans fall within the income guidelines of the Rural Development home loan, especially those who already reside or work in rural areas where income is generally lower than in larger city populations. With the state’s sales tax and income tax higher than the national average, it is often difficult for Arkansans to save the necessary funds for the initial closing costs and fees that accompany the purchase of a new home. The USDA Rural Development home loan waives the need for a traditional down payment, so a homebuyer’s savings can be used for other necessities like utilities, furniture, and moving expenses. Normally, USDA allows the buyer’s closing costs to be covered by the seller as well, so a new home purchase can require no cash out of pocket.

The USDA Rural Development home loan has a fixed interest rate that is based on the current market rates. These nationally-monitored rates keep mortgage payments as low as possible, so regardless of the going mortgage rate in Arkansas, families on budgets can afford the best homes possible with their income through USDA. If the interest rate is lower in the future than when the home is originally purchased, USDA allows homeowners to refinance with lower rates and terms. The home must have been owned for 12 months before a refinance is possible. This option is great for homeowners that incur expenses they wish to pay down or home repairs they would like completed.

1. 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.

 

2. 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.
3. 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.

The US Department of Agriculture (USDA) Rural Development (RD) loan is ideal for potential homebuyers who have substandard credit histories. While other mortgage loan programs require borrowers to have a credit score of at least 640, the USDA RD loan accepts credit scores as low as 620. Bruised credit isn’t always the result of poor financial management and carelessness; job loss during the economy’s recession, rising healthcare costs, student loans, and unexpected medical expenses will force one to make difficult financial decisions that can affect credit. Fortunately, USDA understands such hardships, and even disregards bankruptcies after 2 years of discharge and forgives foreclosures after 3 years.

 

The USDA RD loan is also advantageous to homeowners wishing to strengthen their credit profiles. Borrowers without an extensive credit history can still get a loan if they have had two active positive tradelines on their credit report for at least 12 months. Acquiring and paying a mortgage on time has a great positive impact on credit profiles, so later it is easier for people to afford vehicles, appliances, and other necessities, and helps homebuyers look more appealing to potential future employers who may check credit histories.

 

The USDA RD mortgage loan program isn’t just beneficial to borrowers with lower credit scores, but also to lower-income citizens. Since the loan program doesn’t require a down payment, families who stretch every dollar can afford their own homes with less reserves than required of other popular mortgage loan programs. The most important requisite for a USDA RD loan preapproval is a reliable employment and pay history. If a borrower has been steadily employed for 2 years and can prove adequate income to cover their monthly mortgage payment, they will meet minimum standards for an RD loan. Another great aspect of the RD program is that it allows up to four borrowers on a loan which is helpful for households with blended incomes.

 

The USDA RD loan is affordable and preapproval is easy. Borrowers who have had credit mishaps or no credit until recently now have the ability to buy their own homes. USDA is committed to growing our economy and giving every deserving citizen the equal opportunity to achieve the American dream.

The US Department of Agriculture and has established the USDA mortgage loan program which encourages economic growth in developing rural areas by making homes more affordable for the average American. Homebuyers are enticed to relocate by this program’s more lenient loan conditions, competitive nationally monitored rates, and no required down payment. Unlike other loan programs which require credit scores upward of 640, the USDA Rural Development Loan permits borrowers with a minimum credit score of 620. This is especially appealing to first time homebuyers whose credit history may not be as strong as those who have previously owned a property, as well as borrowers who don’t have the equity from a sold home to use as a down payment. Additionally, USDA allows up to four borrowers on a loan, and they are not all required to have a credit score if at least one borrower meets the minimum requirements. This is beneficial to lower income households with strict budgets and to borrowers who can contribute financially but who haven’t yet established a credit profile. This loan program is valid for new, existing, and foreclosed homes. Through USDA, borrowers who have had a past bankruptcy are also eligible two years after they have been discharged and foreclosures are overlooked after three years. With a reliable employment and banking history, homeownership can become a reality for many who believed they didn’t qualify. USDA also has refinancing options for those who have owned their home for at least a year and wish to either change their terms or cash out on their equity. In some cases, a new appraisal and inspection may not even be required.

The USDA mortgage loan is valid only on homes in USDA-defined rural areas. Typically rural areas are considered to be open country, but USDA-defined rural areas are often on the outskirts of major cities, in small suburban communities, and in areas with less than 25,000 residents. Information about qualifying areas can easily be obtained through USDA’s website.

USDA is committed to continuing the support and improvement of rural developments. New communities of homebuyers necessitate the creation of countless jobs in order to thrive. With new homes there is the need for plumbing and other city works, electricity, telephone and television providers, shopping, restaurants, and schools. Also, people who own their homes are more likely to expand their families and be involved in their local communities, thus fueling the economy’s progression and securing the future. The USDA mortgage loan provides Americans the opportunity to afford a home and help to grow and strengthen our economy.

1.  The USDA Home Loan is truly 100% no money down. It is only 1 of 2 loan types that has this feature. The other is the VA Home Loan
2. The guarantee  fee (same concept as mortgage insurance) is much lower than other loan types. Compared to the .85 FHA uses the USDA Loan uses a factor of .50
3.  Flexible credit requirements- The USDA Loan is very forgiving when it comes to credit standards. Alternative credit is even used in some cases.
4. Seller paid closing costs. On a purchase transaction the seller is allowed to pay up to 6% of the sales price towards the borrowers pre-paids and closing costs. (Usually more than enough to cover everything)
5. Competitive Rates- Interest rates are typically close to other loan types such as FHA and VA
6. While the term rural is often associated with the loan it is very common to to see the loan used in areas just outside of major cities.
7. Borrowers do not have to be first time home buyers to be eligible.
8. Properties with extra acreage are acceptable
9. No maximum loan amount
10. Borrowers can afford more home for less compared to other loan types

The USDA Rural Development Loan has whats called a Guarantee Fee. This is essentially the same concept as mortgage insurance on other loan types. There are two different fees charged. The upfront and the annual. The upfront fee is often confusing for borrowers because of the word upfront. People often think they must actually bring this money at or before closing. Actually this fee is rolled into the loan. The current upfront percentage used is 2.75%. For example if the loan amount is  $100,000 it will become a loan amount of $102,750 on the USDA home loan. The added amount has minimal impact on the total monthly payment. The annual fee is just as confusing. The current annual fee is .50% but is paid out monthly.