The Rural Development program provides mortgage loans to low and moderate-income families who reside in rural areas as determined by the United States Department of Agriculture.
Rural Development allows for 100% purchase loans as long as property and income restrictions are met. Rural Development also has refinance programs for those borrowers who already hold a Rural Development mortgage and are looking to improve their financing.
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Rural Development is a type of mortgage that is restrictive based on income, property location and property specifics. It is a great option for borrowers looking for a 100% financing option but the total household income must be below the stated levels depending on what parish the subject property is located in.
Rural Development restricts lending to certain areas to ensure that only properties they deem rural are eligible for this type of financing. They determine which areas are eligible by looking at the most recent census data to make sure the population is within what they consider to be acceptable per their definition of rural.
Most parishes in Louisiana are completely eligible. The following parishes may have some restrictions and it’s best to call LA Lending with a property address to check the eligibility prior to viewing the property:
*Orleans Parish is completely excluded
Benefits of Rural Development:
- 100% Financing for purchases
- If the property appraises for higher than the purchase price, the loan amount may be increased up to that amount to cover out of pocket closing cost. This is the only loan type that allows for this option and can get borrowers in a property with little to no money at closing.
- Sellers can pay all closing cost if negotiated in the contract sales price
- Very low monthly mortgage insurance premium compared to FHA and Conventional loans.
Specifics of Rural Development:
- Rural Development does charge an upfront funding fee (also known as a guarantee fee) in the amount of 1% of the loan amount. This fee is allowed to be financed in the loan amount.
- Rural Development charges a small monthly mortgage insurance fee for the life of the loan. This amount is recalculated annually and decreases as your principal balance is paid down.
- Rural Development is only available to those purchasers seeking financing for an owner occupied residence who will not own any other properties at the time of the loan closing.
- Rural Development has similar property appraisal restrictions as FHA. The appraisal will need to be conducted by an FHA approved appraiser and they will have to comment on any property deficiencies that would cause concern for safety and any condition that would affect the structural integrity of the property. The appraiser will need to comment that the property meets USRD guidelines and if it does not, list all concerns and a cost to repair all items within USRD standards. This is a very important hurdle when obtaining a USRD loan and it is very important when making repair request to the seller to keep this in mind.
- Some additional property inspections could be required if the property has a private septic system or a private well water system. This would be an additional cost to the buyer and is typically only required if the appraiser notes any deficiencies in the property.
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