The Rural Development branch of the USDA has several programs that are available to assist a wide range of borrowers. The Rural Housing Service  works with  private lenders to guarantee loans to borrowers for  the construction or purchase of  multi-family housing units; community facilities;  and individual homes.  Most  loan guarantees issued by the Rural  Housing Service are from 80-100% of the  amount of the loan.

The reasons investors might  choose  to work with the Rural Housing Service are many.  Since  loan guarantees issued  by RHS are backed by the full faith and  credit of the U.S. Treasury, many  lenders consider RHS programs  to be a relatively risk-free way to expand  portfolios.

Also, loans made possible by  partnerships between RHS and private lenders improve the economic  health of  rural communities.  The continued well-being of rural  areas provides more  opportunities for lending institutions which  invest in these communities Section 502 loans  are primarily used to help low-income individuals or  households  purchase homes in rural areas. Funds can be used to build, repair,  renovate or relocate a home, or to purchase and prepare sites,  including  providing water and sewage facilities.

Eligibility: Applicants for loans  may have an income of  up to 115% of the median income for the area. Area income  limits  for this program are here.   Families  must be without adequate housing, but be able to afford  the mortgage payments,  including taxes and insurance.  In addition,  applicants must have reasonable  credit histories.

Approved  lenders under the Single Family Housing Guaranteed Loan program  include:

Any State housing agency;
Lenders approved by:
HUD for submission of applications  for  Federal Housing Mortgage Insurance or as an issuer of Ginnie  Mae mortgage backed  securities;
the U.S. Veterans Administration as a  qualified  mortgagee;
Fannie  Mae for participation in family  mortgage loans;
Freddie Mac for participation in family  mortgage loans;
Any FCS (Farm Credit System) institution  with direct lending  authority;
Any  lender participating in other USDA  Rural Development and/or Consolidated  Farm Service

Agency guaranteed loan  programs.

Terms: Loans are for 30 years.  The promissory  note interest rate is set by the  lender.

There is no required  down  payment. The lender must also determine repayment feasibility,  using ratios of  repayment (gross) income to PITI and to total  family debt.

Standards: Under  the Section 502 program,  housing must be modest in size, design,  and cost.   Houses constructed,  purchased, or rehabilitated must  meet the voluntary national model building code  adopted by the  state and RHS thermal and site standards. New Manufactured  housing  must be permanently installed and meet the HUD Manufactured Housing  Construction and Safety Standards and RHS thermal and site standards.   Existing  manufactured housing will not be guaranteed unless it  is already financed with  an RHS direct or guaranteed loan or it  is Real Estate Owned (REO) formerly  secured by an RHS direct or  guaranteed loan.

One of the common misconceptions of this program is that your buyer will have to live on a farm somewhere in the middle of Iowa to be eligible for the program.  Agents, Lenders, or borrowers can go to http://eligibility.sc.egov.usda.gov/eligibility/mainservlet and look up a particular area to find out if it is in an eligible area for the program.

The guidelines vary by state but basic guidelines state that a borrower with a 660 credit score, a Bankruptcy older than two years, no lates for 12 months, all collections paid by closing, and of course having income and area eligibility will qualify for a loan.  There are exceptions to the credit score and factors such as time on the job and overall credit picture will strengthen a lower scored borrower.

The advantage to the borrower is the ability to offer 100% financing of the market value of the home, which can INCLUDE closing costs.  The advantage to the Agent is knowing about a product that can turn a low to moderate borrower that might not have the down payment into a home owner.  If you have a lender you currently work with I encourage you to ask them about the program and how the both of you can market this No Money Down program. 

 

 I also suggest contacting your state’s USDA office ( found Here ) to get specific information about your state guidelines and preferred lenders.