USDA Home Loans

Background and History of USDA Home Loans

People often wonder why the U.S. Department of Agriculture is involved with rural housing programs. The answer to this question goes back to the New Deal, as well as efforts in the 1930s and 1940s. The goal of the USDA mortgage program is to provide a better standard of living and a path to homeownership for rural residents. During the early 20^th century, very few rural homes in the United States had indoor plumbing or electricity, and poverty was at an all-time high. Before the creation of the FHA and the Housing & Urban Development (HUD) programs, the U.S. Housing Act of 1949 created what would eventually be the first consumer USDA rural home loan program. This new program then placed direct responsibility at the USDA for appropriate funding. USDA financing was initially used for on-farm housing, however non-rural farm financing was eventually added in order to round out the program’s coverage.

The Housing Act of 1949 declares that every American deserves a “decent home and a suitable living environment.” Housing in a post-World War II era was in short supply, and many cities had houses that were in rapidly-deteriorating condition. To meet the goal of better and more-abundant housing, the following provisions of the Housing Act set the framework for the creation of the USDA home loan program.

Title 1

Title I of the Housing Act financed the clearance of slums under urban redevelopment and renewal programs.

Title II

Title II of the act increased authorization for Federal Housing Administration mortgage insurance.

Title III

Title III committed the U.S. government into building 810,000 new public housing units by 1955.

Title V

Title V of the act gave authorization to the Farmers Home Administration to grant mortgages for the purchase or repair of rural single-family houses. Title V also authorized financial assistance in rural areas to farmers, owners, developers, and elderly persons for the purchase of rural property and the construction of adequate housing, insurance on various loans, and financial assistance for rental housing for farm workers.

The provisions of these titles were strongly influenced by the individual cities and their respective suburban areas. The Housing Act also recognized the shortages of readily-livable housing that characterized much of rural America. Through the Rural Housing Insurance Fund Program, established by the Housing and Urban Development Act of 1965, USDA mortgages can provide a path for rural home purchases, repair, and more. For the first time in U.S. history, the federal government was in charge of constructively shaping U.S. urban and suburban areas. As a result, state and local policies changed considerably. These changes affected social welfare programs, race relations and economic development decisions in addition to housing. The Housing Act of 1949 was significant and broad in its creation of a new federal role, but it was also instrumental in in establishing housing as a central policy focus. The act was instrumental in creating the modern USDA financing programs that make the American Dream of home ownership possible for millions of rural Americans across the country.

USDA Loans Information and Statistics

• USDA mortgages are designed to help spur homeownership in rural areas.
• The program provides “supervised credit,” including pre-loan and post-loan credit counseling to its borrowers to help them maintain their homes during financial hardship.
• The U.S. government guarantees 90% of the USDA mortgage principal as an encouragement to private lenders to make loans available to rural residents whose incomes range from 80% to 115% of the median county income.
• A USDA home loan may be up to 100% of market value or acquisition costs, whichever is less.
• USDA financing primarily benefits rural areas nationwide. The highest U.S. areas that receive benefits (in per-capita dollars) are in low-income areas.
• USDA rural home loan programs have built or assisted more than 4 million units since their creation.
• In 2014, the USDA invested almost $20 billion to help nearly 140,000 families buy and improve their homes.
• The largest and oldest low-income USDA mortgage program is the Section 502 loan for homeownership.
• The Section 502 USDA home loan has helped more than 2.1 million low-income families become homeowners.
• The Section 502 guaranteed loan program has financed more than 120,000 mortgages a year since its creation.

The most important feature of USDA rural home loans is that they allow for 100% financing of an eligible home’s purchase price. Federal Housing Administration (FHA) loans, by comparison, require a minimum of 3.5% down payment, adding thousands of dollars in upfront expenses that rural Americans simply can’t afford. The no money down feature of a USDA mortgage has provided many rural residents with the ability to buy a home who would otherwise be locked out of homeownership. USDA rural home loans only have one financing choice: a 30-year fixed rate mortgage. This program is the safest and most-proven mortgage term for USDA home loans. Limiting the program to this loan term improves the success of the program and ensures its availability to rural Americans in the future. Buying a home is one of the largest investments in a person’s life. A home is more than a financial investment¬¬ — it’s an investment in your share of the American Dream. The USDA home loan program works hard to provide a path to homeownership for eligible rural borrowers.

Frequently Asked Questions (FAQ) About Rural Home Loans

What is the first step in obtaining USDA financing?

Prequalification is the first step that aspiring rural homebuyers must take toward obtaining USDA financing toward the home of their dreams.

How is eligibility for the program determined?

In order to determine eligibility for a USDA mortgage, a loan officer will examine the financial and credit background of the borrower.

What financial information can I expect to disclose during the prequalification stage of the loan process?

In this initial stage, a loan officer will only ask basic information and rough estimates of your financial status. Some specific information that you can expect to disclose during the prequalification stage includes: your approximate credit rating, your current income, price range of the home you would like to purchase, current debts and any assets. Disclosing this information will provide a loan officer with a better view of your financial background, and it will help you to identify any potential roadblocks that could prevent you from securing a USDA rural housing loan.

How will I be evaluated for credit worthiness?

As with any mortgage loan, you must display the ability and willingness to repay a USDA home loan in monthly installments. Your credit background will be analyzed to determine your ability to meet the repayment obligations as they become due. It is also important that you show steady and sufficient income, as well as reserve income. An accurate view of your available income will help determine your ability to meet your monthly USDA mortgage payments.

Can you explain the process of receiving the pre-approval letter?

Receiving your pre-approval letter is an in-depth process, and it takes account of your paystubs, tax returns, W2s, employment history, investments and other assets. The paperwork may seem like a lot in this stage of the USDA loan process, but sellers are much more likely to take your offers seriously once they know you are approved and have received your pre-approval letter.

I received my pre-approval letter. Does this mean that I qualify for a USDA mortgage?

Your pre-approval letter does not necessarily mean that you will qualify for USDA financing. You may have to meet certain requirements to receive your loan, such as restricting the purchase of big-ticket items and not taking on any new debts.

When should I let my real estate agent know that I’m using a USDA rural housing loan?

It’s important to let your real estate agent know you’re using USDA financing after you have found your home and have made an offer. This step is important because the seller will be paying the closing costs, keeping your loan 100% financed.

What happens if I can’t negotiate the closing costs into my offer?

In the event you aren’t able to negotiate the closing costs into your offer, the USDA rural housing loan program allows gift funds from family or close friends. However, you will need a gift letter to accompany your application if the closing costs can’t be negotiated.

Is there anything I should know after I have made my offer?

Yes. An inspection of the property will need to be set up to ensure the home is safe and meets the USDA home loan quality standards. A property that does not meet the standards of the inspection must be fixed by the seller before closing.

How long can I expect the closing process to take?

The entire USDA mortgage closing time will take an average of 40 days from contract to closing. Some less-populated states will enable homebuyers to close faster. Homebuyers who qualify for USDA rural home loans must take into account that there are many factors that can influence the timeline in a real estate transaction.

USDA Loans Continue to Provide a Path to Homeownership

The need for USDA home mortgages remains prevalent in the United States. The program provides a path to homeownership for rural families that truly have no other way to make affordable homeownership a reality. The homeownership opportunities provided by USDA rural home loans continues to provide prosperity and creates thriving communities in the process. Improving the quality of life and establishing a path to homeownership is the ultimate goal of the USDA mortgage program. It is an essential part of our country’s efforts to provide decent and quality homes for rural Americans.

What Are The Benefits Of USDA Home Loans?

A USDA rural home loan from CrossCountry Mortgage, Inc. provides many benefits:

• You may qualify for up to 100% financing. The loan amount may not exceed 100% of the home’s appraised value.
• No down payment is required.
• Your interest rate will be fixed, keeping your monthly payments consistent throughout the loan term.
• Closing costs can be paid by the seller or included in the loan.
• The program is not limited to first-time homebuyers.
• There is no maximum purchase price, though qualifying ratios and income will determine eligibility.

What are the Eligibility Requirements for USDA financing?

To qualify for a USDA rural home loan, you must meet certain criteria as defined by the USDA:

• Applicants for USDA home loans may have an income of up to 115% of the median income for an area.
• In addition to area median income requirements, you must meet the income restrictions for your respective county.
• You must already be without adequate housing, but be able to afford your mortgage payments, including insurance and taxes.
• You must have a reasonable credit history.
• Loans have a 30-year term.

Finding An Eligible Home

In addition to the personal eligibility requirements, the home you’re looking to finance must be located in a designated USDA rural area and be one of the following:

• An existing home.
• New construction.
• A modular home.
• Planned unit development (PUD).
• An eligible condominium.
• A new manufactured home.
• Certain home repairs and improvements may be included in the loan.
• Investment properties are not eligible.