Your Quick Guide to USDA Guaranteed Loans for Rural Homebuying

Going rural this year? You can look up homes or farm properties for sale. More importantly, you might be eligible to finance your new home using USDA Rural Development guaranteed loans, among other programs.

From eligible homes to eligible loan purposes, get to know USDA guaranteed loans for rural homebuyers here.

This way to approved lenders.

Guaranteed Loans for Rural Homes

With the backing of USDA RD, eligible homebuyers get 100% financing for their rural homes.

That makes USDA guaranteed loans $0 down-payment loans!

Why is this so? The program is created to help households with low- and moderate-income buy their own homes.

What Home to Buy

These homes, however, have to be located in an eligible rural area that can be checked here. They must also be decent, modest, safe, sanitary, and adequate for a family to live in as their primary residence.

There are instances when a homebuyer with an existing home is allowed to buy another dwelling using a USDA guaranteed loan. He or she must meet certain requirements such as the existing home not financed by any Rural Development loan or grant, and that the new home will serve as the primary residence.

Who Qualifies

USDA sets out eligibility standards for its guaranteed loans while its approved lenders make or approve the loans based on those standards.

Go over the following requirements.

1. Applicants must meet USDA’s income eligibility.

2. Applicants must demonstrate that they are/were unable to secure traditional conventional credit that is defined by USDA as:

  • Having liquid assets (non-retirement) of at least 20% of the home’s purchase price that can be used as down payment.
  • Having the ability to pay all closing costs, on top of the 20% down payment.
  • Having a PITI/TD ratio of 28%/36% when the 20% down payment is applied. PITI is principal, interest, taxes and insurance while TD is total debt.
  • Having credit that qualifies for a conventional loan which is a 30-year fixed-rate with no private mortgage insurance.

Shop and compare rates.

An applicant who meets the above criteria for traditional conventional credit is ineligible for a guaranteed loan from USDA.

3. Applicants must occupy the property as their principal residence throughout the life of the loan. USDA will require a bona fide occupancy within 60 days of the closing date.

Servicemembers on active duty may still be eligible for USDA guaranteed loans provided that their family members will continue to live in the property as their primary residence.

The same goes for student applicants: they have to certify that they will occupy the home as their primary residence.

4. Applicants must have the legal capacity to incur a debt obligation.

5. Applicants must not have been suspended or debarred from participating in any Federal programs. The lender will perform this check using SAM.gov (the U.S. General Services Administration’s System for Award Management).

6. Applicants must be a U.S. citizen, has an acceptable citizenship or immigration status.

7. Applicants must show willingness to repay the loan.

How to Use the Loan

Aside from buying a home that meets USDA’s minimum property standards, noted above, the guaranteed loan can be used to refinance an existing guaranteed loan and other eligible mortgages.

USDA-backed guaranteed loans can also go toward the repair costs of a home being purchased.

Indeed, USDA provides approved lenders with a 90% guarantee so they can make 100% loans to eligible borrowers.

For more questions, speak with a USDA approved lender.

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