It’s Baaack! (In a Good Way!!)

This past February we posted information on Rural Development (RD) home loans – what it is, how it works, why this is such a great program.  Interest in this program has really grown over the past few years because it is so consumer friendly.  We too have seen a steady increase in RD loans.  Our company continues to underwrite more RD loans than any other lender in the state of Michigan.

Unfortunately, by April of this year funding for the program had already been exhausted for the fiscal year that runs October 1 – September 30.  Kevin Smith, Area Director for Rural Development explained that, “Record demand, not only in Michigan but nationally, for the Guaranteed Rural Housing loan program lead to the full utilization of Congressionally appropriated funding at an early time frame this fiscal year.”

While more federal dollars have not be allocated yet, the US Department of Agriculture Rural Development has decided to continue the program again for the remainder of this fiscal year by issuing conditional commitments again.  What this means is that lenders can conditionally approve and close RD loans. 

The original article we posted on this loan program follows.  Of course you can always contact us directly to for more information (866-982-9823) too.

RD Loans – A Great Option to Consider

An RD loan is a Rural Development home loan offered by the Rural Housing Service specifically for moderate to lower income residents buying homes in rural areas.  A rural area is defined as a community with a population of 10,000 residents or less.  Although some communities located outside of a metropolitan statistical area can qualify with populations up to 20,000 residents. 

In plain English this means if you would like to purchase a home in an area that is not a large city there is a program available.  For most, when you initially think of what a rural area is you might envision acres of farmland or large acreage properties where your neighbor is a mile away.  Not so.  In many instances rural areas are just outside of major cities.  In fact in the state of Michigan, more areas qualify for rural status than areas that do not.  Many of these areas are cozy suburban towns with close knit neighborhoods and strong local schools. 

Another point to note is that the RD loan program cannot be used to purchase or refinance farms or large acre properties where the land far out values the home.  This is a program for consumers who meet the typical credit requirements of obtaining a home loan.  They are just in a slightly lower income bracket and do not have enough funds on hand for a 20%+ down payment.  If this isn’t a program that helps the “little guy” I don’t know what does!  The largest advantage of RD loans is that they currently remain one of the last true “zero down” home loan options.  (VA loans are the other zero down payment option.)

The basic guidelines for an RD loan include:

  • Loans may be used to purchase a single-family, primary residence.
  • On a refinance, the existing loan must already be an RD loan.
  • A borrower must lack sufficient resources to provide a down payment for a conventional loan (typically 20-25% of the purchase price).
  • The RD loan allows a borrower to finance up to 100% of the appraised value of the home without requiring private mortgage insurance. 
  • A one time funding fee is charged and may be financed as part of the loan.  (For purchases, 2% of the loan amount is charged.  On refinances, the fee is .5% of the loan amount.  See you Home Loan Specialist for specific details.)
  • The property must be located in a designated rural area, have all-weather street access, and have approved water and waste systems.
  • The value of the site may not exceed 30% of the total appraised property value.
  • Sellers may contribute up to 6% of the purchase price toward closing costs and pre-paids.
  • Gift funds are allowed.  (Consult a Home Loan Specialist for specific criteria.)
  • Currently, only above ground pools are allowed with RD loans.
  • The property may not be active farmland.

With comparable interest rates, high LTV (loan to value) allowance and no monthly mortgage insurance, RD loans provide a great option to home buyers who may have thought they could not qualify for a home loan.  Talk with one of our Home Loan Specialists (866-982-9823) about the specific details and how this program can work for you.

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