The Rural Loan is changing the way Americans buy homes. To qualify for a mortgage in the past, large down payments were required along with specific high credit standards and substantial assets. It could take years for someone to save enough to cover the initial costs of buying a home. Now there are mortgage programs that require as little as 3% down, but the Rural Loan is the only mortgage program that requires $0 down, other than the VA loan which is only available to veterans. Eliminating down payments makes it possible for financially capable Americans to afford homes of their own without saving for a down payment.
Unlike other mortgage programs, the Rural Loan permits a buyer’s closing costs and fees to be wrapped into the transaction and financed throughout the life of the loan. Some other programs will allow a seller to pay a portion of the buyer’s closing costs, but the Rural Loan has no limit on the percentage covered by the seller.
The Rural Loan is backed by the USDA which makes having low mortgage insurance possible. Since the Rural Loans are no money down mortgages, they require mortgage insurance which protects investors if borrowers default on their payments. The upfront mortgage insurance fee for a Rural Loan can also be wrapped into the mortgage and paid in small amounts through your monthly mortgage payment. The rates are reevaluated every year.
Mortgage rates are low for the Rural Loan because of its government guarantee. The mortgage rates are federally-monitored and updated frequently. The rate you close with will be the lowest possible rate available at that time. You have the option to refinance once you have owned your home for 12 months.
The Rural Loan will approve credit scores above a 620. This is low in comparison to FHA and Conventional programs that won’t approve a score under 640. It’s difficult to have perfect credit with rising healthcare costs, an economy recovering from the recession, and so many first-time homebuyers carrying student loan debt. The Rural Loan’s guidelines overlook past credit flaws as long as your current report is positive and no accounts have been sent to collections within the previous 12 months. The Rural Loan will consider other lines of credit for your eligibility if you don’t have enough adequate traditional tradelines. These may include rent, utilities, and phone services.
Low income isn’t a disqualifying factor for the Rural Loan. In fact, this loan program was designed to provide low income buyers with 100% financing. There are income restrictions that are based on the average per capita income for a given geographical area and you won’t be eligible if you exceed the limits. However, many people are surprised to find their income qualifies them for the loan, especially since the income restrictions factor in the number of household members.