Is There a Mortgage Program for Rural Areas?

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For some people, living in a rural area away from the crowds and hustle of the city is a dream come true. But living that rural life sometimes comes with a price. Some homes in rural areas have greater repair or maintenance needs before they’re move-in ready, especially if they’re older properties. There are a number of mortgage assistance programs that people use in more urban areas, but are there mortgage programs for homeowners in rural areas as well?

If you have an authorized lender and the home you wish to purchase meets the necessary qualifications, you should be able to take advantage of some of the same Federal Housing Administration (FHA) loan programs that you would use for urban purchases. If you’re looking specifically in rural areas, though, you may get a better deal through the rural area mortgage program offered by the United States Department of Agriculture (USDA).

What Is a USDA Loan?

If you aren’t familiar with USDA loans, they’re not that different from more common government-backed loans like FHA loans. But unlike with the FHA, loans offered through the USDA’s rural area mortgage program are intended specifically for properties that lie outside of urban zones. The goal of these loans is to encourage homeowners to purchase properties in rural areas, ensuring that the properties are maintained so that they don’t fall into a state of disrepair.

To this end, USDA loans usually have really good terms for qualified borrowers. Depending on your situation, the property you wish to buy, and the specific loan you’re applying for, you may even be able to use a USDA loan to purchase a rural home with no money down. This helps low- and middle-income individuals and families get the home they want even if they wouldn’t be able to afford it through a more traditional loan.

What Types of Loans Are Available?

There are three primary types of rural area mortgage programs offered through the USDA. The most popular is a loan guarantee, such as the USDA’s single-family housing guaranteed loan program. This provides a federally backed guarantee of up to 90% of the loan amount, encouraging partner lenders to make 100% loans that require no down payment. For these loans, you’ll work with an independent lender that has been approved by the USDA, similar to how you would take out an FHA loan.

Another option comes in the form of direct loans, which are issued by the USDA itself. These loans are intended to provide safe housing for those most at risk and are typically available only to low- and very low-income individuals. Some of these loans are used to supplement an existing mortgage and temporarily reduce your payments to make them more manageable, while other direct loans actually cover the cost of buying the house. With subsidies and other programs, these loans may carry effective interest rates as low as 1%.

The third type of loan available from the USDA is a home improvement or repair loan. As the name implies, these are intended to help you fix up a property that you have already purchased (or that you are purchasing through a program such as the USDA’s other loan programs). These can be combined with USDA grants as well, giving you around $27,500 to make needed repairs so that your home is safe and livable.

(And, if you do find yourself in trouble with any of these USDA loans, USDA rural development loan modifications are a real potential. The USDA has several options that can help you save your home.)

USDA Loan Qualifications

Different USDA loan programs may have different qualifications, but there are a few points that all of its loans share in common. While you’ll need to check out the specifics for the exact loan product you apply for, here is what you can generally expect when qualifying for a USDA loan:

  • You can’t have a household income higher than the levels set forth by the USDA for your loan product

  • You must be a U.S. citizen, a non citizen national, or a qualified non citizen

  • You must be legally able to take on debt

  • You must not be barred from participating in federal programs

  • You must be willing to meet credit obligations in a timely manner

Additionally, the property you wish to buy has to be used as a primary residence, must be located in a certified rural area, and must meet any other criteria for the program you’re applying for. If the loan is offered by a third party, they must be approved and authorized by the USDA to offer USDA-backed loan products.

Using USDA Loans

For a lot of loans, you’re pretty limited on what you can use the funding for. While there are restrictions on USDA loans, they do allow you a bit of leeway provided that the intended use falls under the heading of rural improvement. You can use a USDA loan to purchase a home, a parcel of land to place a home on, or some other qualifying rural property (and you can even include closing costs in the borrowed amount). You can also use USDA loans to perform repairs and renovations, to make a rural property more accessible through the installation of permanent fixtures and modifications, or to pay to have water, sewage, and other utilities installed or connected.

The USDA allows for other possibilities as well. Here are just a few of the options available:

  • Regrading a property to prevent flooding/improve water flow

  • Landscaping renovation, including sod installation and tree planting

  • Installation of driveways, walks, and fences

  • Foundation work

  • Buying and installing essential household equipment such as carpeting, washers and dryers, heating and cooling equipment, refrigerators, etc. (provided that it is contained within the house)

  • Installing a broadband internet connection

  • Improving energy efficiency or installing measures such as solar panels to promote energy independence

  • Paying overdue property taxes that are due at the time of the loan’s closing, or establishing escrow accounts to pay taxes or flood insurance premiums

There may be more options available as well depending on the specific loan product that you choose.

Is a USDA Loan Right for You?

Provided that you’re looking for homes within a qualified area, a USDA loan might be exactly what you’re looking for. You don’t have to be a first-time homeowner, either!  As with any loan product, it’s always important that you take your time and find out how good of a fit one of these loans is to your needs. If you’re looking for a way to reduce up-front costs and get a great loan rate and a lot of loan flexibility, then these loans are definitely worth considering.