Source: USDA website

(Area in yellow is not eligible for RD loan. Visit the USDA website for more information ) 

 

If you’re looking to buy a home in a suburban or rural area with no down payment and minimal investment, the Rural Development Single Family Housing Guaranteed Loan Program offered by the U.S. Department of Agriculture (USDA) might be a good option.

What is this program?
According to the USDA website, the Guaranteed Loan Program “assists approved lenders in providing low- and moderate-income households the opportunity to own adequate, modest, decent, safe and sanitary dwellings as their primary residence in eligible rural areas.”

The website explains that “eligible applicants may purchase, build, rehabilitate, improve or relocate a dwelling in an eligible rural area with 100% financing.” Making this program one of the few loans, other than the VA loan, that doesn't require cash up front for the down payment.

The USDA says, “providing affordable homeownership opportunities promotes prosperity, which in turn creates thriving communities and improves the quality of life in rural areas.”

What are the specifics?
In addition to the zero-down-payment perk, there are several other reasons why this loan is considered one of the best kept secrets on the market.

“One of the biggest benefits – and something that sets this program apart from the others – is that you can borrow 100 percent of the appraised value,” said Bryan Clark, senior vice president of mortgage banking with Dart Bank. “If you have a $100,000 purchase price on a property that appraises for $102,000, you actually get that extra $2,000 that you can utilize to finance in closing costs, prepaid expenses, property repairs, etc.”

This loan is not limited to first-time homebuyers, but one requirement that can get tricky is income. Clark says to be eligible, the income of all adult members of the household cannot exceed 115 percent of the area median income limits. 

“If a husband and wife occupy the home, but only the husband is on the loan, the wife’s income must still be counted,” he said. “We’ve also had the scenario where a husband, wife, and the wife’s mother are all living in the home, and we have to include the mother’s social security as part of the income even though she isn’t on the mortgage.”

So, what does that income limit look like? For a household of up to four people, including children, the limit in our market is $92,200. For a five-to-eight-person household, it’s $120,700. 

The Guaranteed Loan Program does not have a minimum credit score, but your lender or investor may require one. And, of course, the property being purchased must qualify and be in a location identified as rural by the USDA. However, some areas that qualify aren't all “country.” For example, in the Greater Lansing area, places like Dewitt and Grand Ledge would qualify.

The home purchased must be utilized as a primary residence (not an investment property or second home), and it must be a single-family home (no duplexes). But there are options regarding the type of property -- existing homes, new construction, condos, modular homes, and some manufactured homes apply.

According to the USDA website, there is no acreage limit, but the “site size must be typical for the area and have no land or buildings principally utilized for income producing purposes.”

Clark explains that this caveat is in place because the Guaranteed Loan is an income-sensitive program. 

“A property that has quite a bit of acreage, for example, could potentially produce crops, which would make it ineligible,” he said. “We’ve had situations where the previous owner was operating an auto repair shop out of the pole barn, or a beauty salon out of the front room. Even if the buyer has no intention of doing the same thing, it does make the property ineligible because there is the potential of generating income.” 

As with any loan program, it’s important to discuss details and qualification requirements with your local lender. For a list of area service providers, visit the Greater Lansing Association of REALTORS® website at www.lansing-realestate.com.