Rural Development or USDA loans are a government loan program that provides up to 100% financing for people purchasing homes with populations up to 35,000 people. Income limits apply to this program, and the maximum purchase price is dependent upon the county which the house is located.
USDA Mortgage Insurance
As of October 1, 2016 the mortgage insurance for Rural Development or USDA loans has an upfront mortgage insurance component and an annual component. The upfront mortgage insurance amount is 1% of the loan amount. This is added to your loan. Many times, this means that you are starting your loan at 101% of the value of the property.
The annual mortgage insurance amount is .35% or 35 bps. In other words, your annual mortgage insurance is .0035 times the remaining loan amount. This is divided by 12 and part of your monthly payment. This calculation is used each year to determine your remaining annual mortgage insurance which is for the life of the loan.
Basic Qualifications for USDA loan:
In addition the property eligibility and income limits as shown below, Rural Development loans typically are limited to 43% overall debt ratio. (Your debt ratio is the percentage of all debt payments compared to your gross income.)
What about the property?
USDA guidelines require that the property not have excess land unless that is common for the area. This means that when the appraisal is completed, the appraiser must be able to find similar properties to the one you are purchasing. For example, if you are purchasing a property with 10 acres, then the other properties that the appraiser uses must have land that is similar in size. If there is additional land, it is very important that the land is not income producing.
What about Outbuildings?
Outbuildings such as barns, silos, greenhouses, or livestock facilities used primarily for income producing agricultural, farming or commercial enterprise are ineligible. However, barn, silos, livestock facilities or greenhouses no longer in use for a commercial operation, used for storage, and outbuildings such as storage sheds are permitted if they are not used primarily for income producing agricultural, farming or commercial enterprise. A minimal income-producing activity, such as maintaining a garden that generates a small amount of additional income, does not violate this requirement. Home-based operations such as childcare, product sales, or craft production that do not require specific features are not restricted. A qualified property must be predominantly residential in use, character and appearance
To determine if you are eligible for your local income limits, please click on the interactive map link, select your state, and this will show you the income limits by county. To confirm if you qualify for the income limits, please call our office!
To determine if a property is eligible for RD financing, please click on logo (link) below and enter property address