The Rural Housing Service (RHS)/ United States Department of Agriculture (USDA) Loan is a no down payment, 100% financing program, which provides families with a low to moderate income level the opportunity to own a home in eligible rural areas.
The RHS loan provides no down payment financing in select rural areas. This in turn, attracts home buyers to less dense population areas. However, the family income cannot surpass an income threshold, and the property must be located in an eligible area.
This no down payment/ 100% financing loan carries with it some strict guidelines but if you and your property qualify, it is a pretty great option! In order to qualify for a RHS loan, your income can’t exceed 115% of the median household income; your mortgage banker can tell you if you qualify or you can determine your eligibility here. Your credit score must be at least 580. Additionally, you must be a U.S. citizen, U.S. non-citizen national, or Qualified Alien. All that said, if you qualify to obtain conventional mortgage financing without private mortgage insurance (PMI) then you aren’t eligible for a RHS loan. As mentioned above, the property must be in an eligible area; your mortgage banker can tell you if your property qualifies or you can determine your property eligibility here. Additionally, you must plan to use your home as your primary residence in order to obtain this type of mortgage.
The reason why your lender can offer a loan without a down payment and a lower credit score than many conventional loans is because it is backed by the RHS and USDA. Just like the FHA loan, this loan is not funded by these organizations but instead is funded by your mortgage lender and insured by RHS /USDA. In order to secure the guarantee of these organizations, qualified borrowers are required to purchase mortgage insurance— and premium payments are made to RHS/USDA. So your mortgage lender takes on less of a risk since these organizations will pay a claim if you default on the mortgage.
The home must meet FHA guidelines.
RHS mortgages are assumable.
Gifts & grant programs are often available in conjunction with this loan, depending on where you are located.
The property cannot be income producing.
Given that a good credit history has been re-established, you may qualify for an RHS loan even if you’ve gone through bankruptcy or foreclosure. You can find more information here.
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