Real Estate News

Financing a Home in a Rural Area? Heres How

Written By: David Reed
Monday, March 04, 2019

As it >

The United States Department of Agriculture oversees the USDA home loan program. First introduced back in 1935, it was an inducement by the federal government to help people buy homes with as little cash to close as possible while at the same time moving people and homes into sparsely populated areas. As long as the applicants used the USDA program to live in the home as a primary residence, it was a welcomed program.

Today, the zero-down USDA loan is still used to finance homes in rural areas and the rates and terms are extremely competitive. Buyers can get the loan directly from the USDA but itrsquo;s much easier to work with a lender experienced with this program. If you take a quick look at the timeline between working directly with an experienced mortgage loan officer with applying with the USDA and all the bureaucratic baggage that would carry, the local loan officer is the preferred choice.

The USDA loan also carries a guarantee to the lender should the loan ever go into default. Should a home go into foreclosure, the lender is compensated for the loss. Just like other loan programs that carry a guarantee to the lender, the guarantee is financed with a form of mortgage insurance. And in the case with a USDA loan, two such policies are attached to the loan. The upfront policy, called the guarantee fee, is 1.00 of the loan amount but does not have to be paid for out-of-pocket but instead is rolled into the final loan amount. There is also an annual premium that is paid for in monthly installments along with the principal and interest amount, property tax and homeownerrsquo;s insurance.

There are a few restrictions that come with the program, one of which is making sure the home being financed is located in an approved area. These areas are identified via the U.S. Census Bureau when the Census is taken. Whatrsquo;s interesting about this is areas that look nothing like ldquo;ruralrdquo; but more suburban in mind it still may be an approved area by the Census Bureau. If an area increases in population since the last Census was taken, buyers can still take advantage of this zero-down loan. That is, until the next Census comes around.

When someone sees a potential purchase, the first thing to do contact the loan officer and provide the property address. The loan officer can then look up the address to make sure itrsquo;s eligible. Second, there is also a limit on household income. All occupants 18 years of age and older must report gross monthly income. The lender will then make sure this income does not exceed 115 percent of the median income for the area.

One final mention- the USDA loan comes in one flavor and one flavor only, the 30 year fixed rate loan. There are no other loan term options but at the same time there is no prepayment penalty so borrowers can pay any amount they wish beyond the required 30 year monthly payment.

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