USDA Loans
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USDA Fact Sheet
USDA Guaranteed
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 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 HCFP thermal and site standards. New Manufactured housing must be permanently installed and meet the HUD Manufactured Housing Construction and Safety Standards and HCFP thermal and site standards. Existing manufactured housing will not be guaranteed unless it is already financed with an HCFP direct or guaranteed loan or it is Real Estate Owned (REO) formerly secured by an HCFP direct or guaranteed loan.
Approval: Rural Development officials have the authority to approve most Section 502 loan guarantee requests.
USDA 502 Direct
Rural Housing Direct Loans are loans that are directly funded by the Government. These loans are available for low- and very low-income households to obtain homeownership. Applicants may obtain 100% financing to purchase an existing dwelling, purchase a site and construct a dwelling, or purchase newly constructed dwellings located in rural areas. Mortgage payments are based on the household’s adjusted income. These loans are commonly referred to as Section 502 Direct Loans.
Purpose: 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 direct loans from HCFP must have very low or low incomes. Very low income is defined as below 50 percent of the area median income (AMI); low income is between 50 and 80 percent of AMI; moderate income is 80 to 100 percent of AMI. Families must be without adequate housing, but be able to afford the mortgage payments, including taxes and insurance, which are typically within 22 to 26 percent of an applicant’s income. However, payment subsidy is available to applicants to enhance repayment ability. Applicants must be unable to obtain credit elsewhere, yet have reasonable credit histories. .
Terms: Loans are for up to 33 years (38 for those with incomes below 60 percent of AMI and who cannot afford 33-year terms). The term is 30 years for manufactured homes. The promissory note interest rate is set by HCFP based on the Government’s cost of money. However, that interest rate is modified by payment assistance subsidy.
Standards: Under the Section 502 program, housing must be modest in size, design, and cost. Modest housing is property that is considered modest for the area, does not have market value in excess of the applicable area loan limit, and does not have certain prohibited features. Houses constructed, purchased, or rehabilitated must meet the voluntary national model building code adopted by the state and HCFP thermal and site standards. Manufactured housing must be permanently installed and meet the HUD Manufactured Housing Construction and Safety Standards and HCFP thermal and site standards.
Approval: Rural Development officials should make a decision within 30 days of the Rural Development office’s receipt of the application.
There are other USDA programs beyond Guaranteed and Direct such as rural rehab loans. Read more here.
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Questions
USDA underwriting guidelines mirror FHA’s UW guidelines.
With 100% LTV loans still available via USDA, do you believe this program should be used to purchase new construction homes? See this WSJ article for reference.
If yes, why? If no, why not?
I agree with you about moving towards a more professional acceptance of the fiduciary responsibility - it will make more ...
The protection for the consumer from goverment is welcome, of couse, the time consumed would be a function of direct ...
Comment by Teresa Gallaher on 4 December 2009:
If builders have built these affordable, reasonable homes in rural areas, I don’t see any reason that a borrower using the usda program should not be able to choose a new construction home. The fact that no down payment is required and the borrower is not subject of mortgage insurance, makes this a preferred option to FHA.
Comment by richard martin on 9 December 2009:
Its an incredible program and no doubt it is going to be the next big thing, but I agree with the Senator that if you are borrowing 102% buying a home might not be the right thing for you right now, and what is a rural area today could become a super subburb tomorrow and your value could skyrocket. I just have the feeling that thiis might be too easy and that it will eventualy be abused and lose sight of the original intent of asssisting people in rural areas.
Comment by Ken Ritter on 11 December 2009:
I think this is a great program and I do not see any reason that a builder who built or builds home in these areas cannot market this loan to buyers in hopes to sell their homes as well.
Comment by Jan Mundt (Henriksen) on 20 December 2009:
With an experience builder that meets the program guidelines as well as the proposed borrower and USDA will guarantee the loan, I see no reason to limit the program to existing construction. My experience with our local agency is they are very willing to assist in any way possible and encourage the use of their program. I disagree with the Senator; should we not promote the VA program either, that’s > than 102% financing?
Comment by Launce Macomber on 21 December 2009:
I think the original intent of the program is tending toward abuse by developers/builders who are pushing new construction sales in upscale, or what could become, upscale subdivisions. I would hate to see the program funding tapped out to the detriment of borrowers in traditionally rural regions who need assistance. Don’t get me wrong, this is a great program and should be continued and supported, especially in difficult times of restricted availability from banks.
Comment by Jerrod Goode on 28 December 2009:
Providing home ownership to people with low income is a good idea. If new construction is available and builders are willing to make these loans I am all for it. 100% financing is not the problem, selling people what they can not afford is.
Comment by Jason Brock on 30 December 2009:
USDA Loans:
Wow… 100% ltv… I used to be able to do 125% loans for rehab. USDA loans should be available to 100% LTV because most people who are qualifying for them fall into a very specific category and must pass stringent underwriting guidelines. Even with FHA loans now some clients are actually walking away with money right now… 97.5%LTV with a 8k kickback “tax rebate from the government”
Comment by James Haechler on 30 December 2009:
I see nothing wrong with this. If builders can build homes at a reasonable cost in a rural area and the USDA finance at 100%, where’s the issue. People get into homes and it creates jobs.
Comment by Arash Fiuzi on 30 December 2009:
The convergence of this loan and national subdivision builders is due to the irresponsible, borrowing, lending and building that charaterized the soon to be finished first and forgetable decade of the century. This will help keep some of these neighborhoods and builders afloat but one has to wonder what will happen when a USDA borrower loses a job…FORECLOSURE!
Comment by Kelly Fiscus on 30 December 2009:
If the house and the person qualifies great. We need affordable housing and we need to create jobs. If we can build a modest house in a rural area which would create a job or two, lets get going. People need affordable housing.
Comment by Chris Yanke on 30 December 2009:
My only concern on buying newly built homes is that this could create an unhealthy situation where builders start developing rural areas and put those areas at risk of being overbuilt. Most USDA loans are looking at a minimum of 30-45 days in underwriting because there has been a tremendous increase in those applications where I work in Washington State. My short answer is “yes” if the criteria fits the program. Since these loans are funded by the government and meant to give lower income buyers an opprortunity, the nature of the home bought shouldn’t necessarily dictate the approval.
Comment by Kelly Fiscus on 30 December 2009:
Again, I have re-read this section and I still say, yes if the house and buyer qualify. House must be modest, rural (not an overdevelope community) and buyer must meet income level.
Comment by Harold Burton on 31 December 2009:
Certainly considering how energy efficent new homes are. I think there is a win situation with this program.
Ultimately it raises the guality of life in rural areas.
At the same time with the down turn in the economy and peoples’ portfolio’s in the toilet it seems to be a good option. Much like the gentleman in the article who purchased a home in rural N.C.
It also creates oppotunites for private investment involved. And these loans are secured by USDA.
Comment by Karen Tuff on 31 December 2009:
I think this is a great program for new construction homes. It will create jobs, create affordable housing and keep the lending business viable. Very necessary for new and/or growing families.
Comment by Kimberly Peterson on 31 December 2009:
I think this program is beneficial to those that need it. I do not see why it should be limited to current homes and not new construction. I do have a little concern about not requiring a down payment.
Comment by Daniel Mulvehill on 26 February 2010:
Todays economic guidelines have chaged under USDA loans they aree for owner occupied occupants and have loan to value limitations the investors that offer this only offer 90% Loan to value, at this time.With 100% financing they were great loan types, but Fha offers a much beteer project, I haven’t written that many USDA loans in my past but recently a web presentation and was quite surprised to see the overall advantages and will look into this at a later date.
Comment by Elisa Wu on 1 March 2010:
It sounds great program. I learned something and have more chances working for my friends who seeking a loan to buy a house with their limited incomes. Especially in WA.