No Down Payment Financing With USDA Rural Housing

Most people I talk to have never heard of the USDA Section 502 Guaranteed Program. So if you have no idea what I’m talking about when I mention this program…don’t worry, you’re definitely not alone. Most people just refer them to as “Rural Housing Loans” or “Rural Development Loans”.

Rural Development (RD for short) loans can be used to purchase or refinance an existing mortgage.These loans have no downpayment requirement, no prepayment penalties and very affordable monthly mortgage insurance. The mortgage insurance has a 2.00% upfront fee (based on loan amount) paid at the time of loan closing and a 0.40% annual fee (based on loan principal balance). (A-33) When comparing the RD mortgage insurance to FHA, which charges 1.75% upfront and as much as 1.55% annually, RD loans clearly become a much more affordable loan option.

RD mortgage guidelines are easy to understand, but you AND your home must qualify. Here are some of the most common RD questions I’m asked by Realtors® and mortgage clients I work for:

How much money do I have to put down for an RD loan?

Although you can choose to put money down, there is no downpayment requirement with RD.

Is the RD loan just for first-time homebuyers?

No…it can be used by anyone that qualifies.

How do I know if my home is in an area that is eligible for RD?

On the USDA website there is a tool that you can do an eligible property search. Please know that as of October 1, 2013, some properties that are currently eligible for an RD loan will no longer be eligible. Please see my previous post or call me for details.

How much are closing costs on these loans and can I have gifts to pay closing costs?

Closing costs will vary widely by the lender you select. RD loans do allow documented gifts. Ask your loan officer about this or Contact Me for more information about this.

Can I use RD loans to buy investment property?

No. RD loans are exclusively for primary residence occupancy and cannot be used to purchase second homes/vacation homes or investment property.

As always, my door and phone are always open for you and your mortgage scenario questions. Please feel free to contact me directly if I can be of further assistance to you with an RD loan or other mortgage scenario.

Mortgage guidelines can change at any time. The information in this post is accurate as of the date it was posted.