There is no requirement for a down payment if you qualify for the Single Family Housing Direct Home Loan offered by the US Department of Agriculture, generally known as the Section 502 Direct Loan Program. If the home’s price falls within the USDA loan limits, you might be eligible to loan up to 100% of the home’s cost. The program is intended for applicants with low incomes. The program’s goal is to encourage rural residents to buy homes.
Longer Loan Terms
The USDA Direct Home Loan lasts 33 years, as opposed to the standard 30-year mortgage, and is extendable up to 38 years for very low-income applicants. Mortgages have set interest rates, however certain very low-income applicants may be qualified for payment assistance, which may reduce their interest rate to as little as 2%.
Only in Rural Areas
USDA Direct Home Loans are only available for properties in rural areas. Due to the San Francisco Bay Area’s larger than 35,000 population, the majority of properties are ineligible. Additionally, candidates must have an annual family income of no over $55,800 for up to four persons.
In California, there are some rural locations that are more likely to comply with the USDA’s requirements for rural land. A USDA loan can be used to build or modify a house in a rural location in addition to buying one. Despite the focus being on rural areas, these loans are not intended to fund farms or houses with a lot of lands. Furthermore, only properties used as the borrower’s primary residence are eligible.
Not Limited to Single-Family Residences
Loans from the USDA SFDHL can only be used for a few types of homes. The house cannot be bigger than 2,000 square feet, and it cannot have an in-ground pool. The price must be greater than the loan limit for the area, which varies by location. According to the USDA, neither the property nor its intended use can be used for businesses that generate income.
Even though “single-family” is mentioned in the program’s name, certain condos and townhomes may be eligible for this particular financing. Prior to closing, the USDA lender will request a property appraisal, as is typical for mortgage applications. The lender receives an opinion of valuation from an appraisal performed by a USDA-approved appraiser based on a visual examination of the asset and an analysis of comparable nearby sales.
The appraisal report aids the lender in confirming that the property satisfies the USDA’s minimum requirements for safety and habitability.
Income Restrictions for Applicants
Borrowers who meet the requirements cannot earn more than 110 percent of the median income in their area. The restrictions rise for families of 5 or more, and that is for a household of up to four. However, as all income is taken into account, a family’s adolescents’ part-time earnings may also be included in the calculation of the total family income.
Debt-to-income levels of 29 and 41 are used by the USDA. This means that the total amount that can be spent on the mortgage, homeowners insurance, and property taxes cannot exceed 29 percent of the gross monthly income. Additionally, the housing payment specified in addition to all other ongoing debts, including automobile, credit card, and loans, cannot total more than 41% of gross monthly income.
Why does USDA Rural Development do this?
The USDA Rural Development Section 502 Direct Loan Program provides an avenue to ownership for low-income and very-low-income families residing in rural areas, as well as those that have no other option for achieving affordable homeownership. Offering these affordable homeownership choices fosters wealth, which in turn fosters vibrant communities and enhances the rural quality of life.
