For families who can't get a mortgage through a bank, Rural Development loans are a boon. The United States Department of Agriculture (USDA)'s Rural Development program offers home loans directly to low-income families, and though you still must meet Rural Development requirements, these loans are easier to qualify for than regular bank loans.To apply, contact a USDA service center. You must be preapproved before you write a purchase contract.
Income, Affordability and Credit
To get a Rural Development mortgage, your income must fall below 50 to 80 percent of the area median income, which you can check on the USDA Rural Development website. The payment--including the principal, interest, taxes and insurance--usually cannot be more than 22 to 26 percent of your income, and all of your payments combined must be less than 41 percent of your income. Your credit doesn't have to be stellar, but it has to be reasonably good.
You must be unable to qualify for a mortgage loan from a bank or credit union to receive a Rural Development loan. This does not mean that you are allowed to have poor credit. Rather, your ineligibility is linked to your income and lack of a down payment and closing costs.
You do not need a down payment to buy a house with a Rural Development loan; however, you will need to cover closing costs, which can run to 6 percent of the purchase price. If you don't have the cash, closing costs may be covered in two ways: you may roll them into the loan, which means that you finance them with the purchase price, or the seller may pay them for you.
You cannot currently own adequate housing within 35 miles of your workplace. Mobile homes that are not on permanent foundations do not count as adequate housing.
Additiional Eligibility Requirements
You must be a citizen of the United States or a legally admitted alien, and you must plan to live in the house as your primary residence. Also, you cannot be behind on payments, especially to the government, if you owe taxes or federally guaranteed loans.
The house you buy must also be eligible. It must be located in an eligible area, which you can check on the USDA Rural Development website. You can use the loan to buy, build or repair a home, but building and repairs must be done by a licensed contractor and are subject to an inspection process. The house has to be safe, sanitary and "modest in size, design, and cost" and cannot be worth more or less than the price you are paying. It also must meet the weatherization and building codes adopted by your state and the Housing Community Facilities Program.
The property cannot have any outbuildings that are "designed for income production," including barns. Additionally, the house must access a hard-topped road that is maintained by a town or homeowners' association. Rural Development requires a number of tests and inspections, which may include water tests, a pest inspection, a building inspection and others. The lot cannot be in a 100-year flood hazard zone and must be of a size that cannot be subdivided according to local zoning laws.