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Rural Development Mortgage

Securing a mortgage to buy a home can feel impossible for many families, even when one or more adults in the family works full-time. Rural Development Mortgages sponsored by the U.S. Department of Agriculture (USDA) were introduced in 2007 to provide low- and moderate-income households the opportunity to own “adequate, modest, decent, safe, and sanitary dwellings” in eligible areas. This includes building, rehabilitating, improving, or relocating a home. And don’t worry, despite the program’s name, your occupation has nothing to do with the qualification process—eligibility is based on criteria of income and location.

Three USDA loan types

Each loan program offers low interest rates (as low as 1%) and low to no down payments. Borrowers will usually need to pay a mortgage insurance premium of 1% to 2% of the loan amount.

Guaranteed USDA loans — These loans are issued by a participating local lender, including many credit unions. The USDA tells the lender they will promise to pay up to 90% of the loan amount should a borrower default. This makes the loan less of a risk for the lender. Fixed-interest rates of guaranteed USDA loans usually run below rates for conventional mortgages (1%–2% vs. 3%–5%). The rate will depend on your financial, credit, and employment history (see eligibility section below).

Closing costs will vary by location. Still, they tend to be low: 1% to 3% of the loan amount. Unlike some mortgages, USDA-backed loan closing costs can be paid for with gift money with proper documentation. Loan terms are the standard 15 or 30 years.

Direct USDA loans — Direct loans come from the USDA (they are your lender) and are designed for low and very-low income families (income thresholds vary by region) who can’t access any other type of financing.

USDA home improvement loans and grants — These loans or grants enable current homeowners to repair or upgrade their dwellings to reach the standards outlined by the program. A loan and a grant can be combined. You don’t have to pay back the grant amount.

Eligibility

Full eligibility requirements can be found at rd.usda.gov. You might be surprised how accessible this program is. Here are a few general qualifications for the program:

  • U.S. citizenship (or permanent residency).
  • Dependable income, typically for a minimum of 24 months.
  • A credit history with no accounts converted to collections within the last 12 months, among other criteria.
  • A credit score of 640 or higher. Or, with a lower score or limited credit history, “nontraditional” credit references, such as rental and utility payment histories.
  • Lack of “decent, safe, and sanitary housing.”
  • Inability to secure a home loan from traditional sources.
  • An adjusted income at or below the low-income limit for the area.

The U.S. Department of Agriculture mortgage program might be one of the government’s least-known mortgage assistance programs, but that doesn’t mean it’s out of reach, doesn’t apply to you, or isn’t offered through your local credit union. The best way to find out is to ask!

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