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An Overview of USDA Loan Program to Finance Rural Housing

An Overview of USDA Loan Program to Finance Rural Housing

  •   Admin
  •   619
  •   Mar 09, 2018
USDA home loan program

With the passage of time, the rates of residential properties have sky-rocketed, which made it difficult for low-and-moderate-income householders to purchase their dream home that ticks all the right boxes. In order to fund projects that bring community facilities, quality housing, utilities, and other services to rural areas, USDA Rural Development has forged partnerships with numerous rural communities. In addition to that, they are offering various types of home loans to build or improve housing in rural areas.

What is USDA Loan Program?

Under this program, people get a window of opportunity to buy their own adequate dwellings and to repair & improve an existing property. The best part is a USDA mortgage plan does not require eligible rural and suburban homebuyers to pay an up-front down payment. It also empowers homebuyers to achieve 100 percent financing on home mortgages.

This program is specifically designed to improve the quality of life in rural areas. It offers single-family housing loans (guaranteed & direct), farm labor housing grants, multi-family housing loans, and housing repair and rehabilitation mortgage. Except these, USDA rural development offers numerous programs and services for individuals, lenders, tribes, and communities.

Types of Rural Housing Loans and Grants

Let’s take a look at various USDA rural home loan programs:

Single-family rural housing finance loans

     a. Direct loan

Issued by USDA, this low-interest loan is designed to help very low-income rural residents acquire a home by providing payment assistance. The purpose of this loan is to increase repayment ability of those families with income below 50 percent or between 50 and 80 percent of Area Median Income (AMI). Usually, this mortgage can be arranged for up to 33 years at 1 percent interest, but under very limited circumstances, the term can be exceeded up to 38 years (for those who have income less than 60 percent of AMI and cannot afford 33-year terms).

     b. Guaranteed loan

Same as direct loan, this mortgage helps moderate-income families to purchase a modest home. To secure this credit, buyer’s income should be less than 115 percent of AMI. This program allows purchasers to get the low interest rates and best terms on the mortgage, even without a down payment. However, qualified buyers must be able to afford the mortgage payments, insurance premium, and taxes. This loan has 30-year amortization terms.

Multifamily housing programs

This program offers both direct and guaranteed loans for providing affordable multi-family rental housing in rural areas. Rural housing service (RHS) works with rural communities and private lenders to finance projects for elderly, very low-and-moderate income families, disabled individuals, and domestic labors. Funds obtained from this loan can be utilized for home improvement, acquiring a new land, and installing water, solar energy, and waste disposal systems.

Farm Labor Housing (FLH) loan and grant

FLH is crafted specifically for domestic farm laborers to help them with the development of on-farm or off-farm housing. The breadwinners who make their living from fish, oyster, and other on-farms activities are eligible for a USDA-backed mortgage guarantee. The proceeds can also be used to purchase a meadow, payback construction loan interest, buy household furnishings, and more.

Housing repair loans and grants

Through the Section 504 loan program, USDA Rural Development offers complete assistance to very low-income homeowners to repair, renovate, or eliminate health & safety hazards in their houses. This rural repair and rehabilitation (loan and grant) program provides financial support to make general repairs and homes more comfortable & sanitary to persons with disabilities.

How USDA-issued home loan funds can be utilized

  • Purchasing a ground-up or existing residential real estate, only if the property owner makes it his permanent residence.
  • Constructing sanitary water systems and waste disposal facilities.
  • Refinancing a current mortgage.
  • Repairing, improving, or modernizing existing dwellings.
  • Buying household furnishings, improving land, and paying construction loan interest.
  • Installing equipment to accommodate a physically disabled family member.
  • Paying Usual, Customary and Reasonable (UCR) fees and pro rata charges for utilities such as water, sewer, electricity, and gas.
  • Paying off a pro rata share of real estate taxes which a landholder is liable to pay on the property at the time of mortgage closing.
  • The establishment of escrow accounts to pay real estate taxes or hazard & flood insurance premiums.
  • Acquiring essential household appliances such as ovens, refrigerators, washers, dryers, and heating and cooling equipment.
  • Installing wall-to-wall carpeting to cover your house.
  • Purchasing and installing energy-efficient products and materials such as insulation, double-paned glass, and solar panels.
  • Installing fixed broadband services to the household (as long as the equipment is within the dwelling).

Bottom Line

USDA home improvement and residential property loans are geared towards improving the lifestyle of rural America and encouraging national economic development. They offer influential flexibility, zero down payments, lower interest rates, and longer loan terms compared to most other housing mortgages.

If you want more information on various USDA loan programs and services, then call us on +1 (951) 634-2477 or drop a message at bb@arrowfinancialco.com.

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