Rural Development Home Loans? 3 Potential Benefits For Your Home-Buying Situation

Prospective home buyers who are struggling to obtain a conventional mortgage approval with good terms may want to look into the home loan program offered through the United States Department of Agriculture. Often referred to as the USDA Rural Development Home Loan Program, this type of home mortgage is offered through banks and mortgage lenders as a guaranteed option, as well as by making applying directly through the USDA. 

While the name seems to suggest that the program is only for the purchase of a rural property, that is not the case. Instead, the USDA makes these loans available over several general areas that they designate as rural based on population numbers. Prospective purchasers can apply for a loan to purchase a qualifying home in these designated areas, whether the home is located rurally or within the boundaries of a city or town. 

Applicants do not need to make a down payment

Prospective homebuyers who have not been able to save for a down payment will appreciate the fact that the USDA RD home loan does not require a down payment as part of loan terms. Instead, the full purchase price of the home can be financed. Additionally, sellers can choose to assist buyers with their closing costs and any prepaid items, including the home insurance binder. In cases where the seller chooses not to assist the buyer with closing expenses, buyers can opt to include that amount into the total financed amount of the loan, as long as the home's appraisal value is high enough to cover the total loan amount. 

Applicants with bruised credit can apply

Another important benefit of using the USDA RD home loan program is that applicants can succeed in getting approved with some types of credit blemishes that would make getting approved for a conventional loan unlikely. For example, some applicants with discharged bankruptcies or foreclosures can be approved, depending on the timing. Because the goal of the program is to allow applicants to succeed as responsible homeowners, more lenient guidelines and underwriting process are utilized. 

Applicants do not need to be a first-time buyer

While a USDA RD home loan could fit well with the needs of a first-time buyer, it can actually be used by any qualifying applicant, even if they have previously been a homeowner. Because these loans do not require private mortgage insurance (PMI), buyers frequently choose them over FHA loans that do require PMI. 

USDA RD home loans do have specific requirements that the home must meet. If you are interested in using this type of home loan, take time to discuss your plans with a real estate professional who can help you find and view qualifying homes.