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Your Legal Corner - Client Alert Blog

USDA Rural Loans With Up To 102% Financing and Low Mortgage Rates… Really.

Written By: Melissa C. Marsh, Esq., California Attorney, June 2009 Add to Favorites
To see if the property you are interested in buying or selling qualifies for a USDA Home Loan click here. Granted it may not work for many properties in Los Angeles, but a vacation home or income property you own may qualify.

There are two types of loans.

Section 502 Rural Housing Direct Loans.
These loans, which allow for 100% financing (even in today’s market) are directly funded by the Government and are available to low- and very low-income households to obtain homeownership. The mortgage payments are based on the household's adjusted income (and the mortgage can span up to 38 years to enable affordability). These loans can be used to purchase an existing dwelling, a vacant lot upon which to construct a dwelling, or to purchase newly constructed dwellings located in rural areas. Funds can also be used build, repair, renovate or relocate a home, or to purchase and prepare sites, including providing water and sewage facilities.

Property Eligibility.
To check if your property is located in a "rural" zone click here. Under the Section 502 Rural Housing Direct Loans Program, the housing must be modest in size, design, and cost (in relation to the area), must not have a market value in excess of the applicable area loan limit, and must not have certain prohibited features. Approval is generally given or denied within 30 days of receiving an application.

Applicant Eligibility.
Applicants for direct loans from HCFP must typically have a FICO score above 680 and have very low or low incomes. Very low income is defined as below 50 percent of the area’s median income (AMI); and low income is between 50 and 80 percent of AMI. The applicant must also be able to show that they are without adequate housing, but able to afford the mortgage payments, including taxes and insurance, which are typically must fall between 22 and 26 percent of an applicant's income. The promissory note interest rate is set by HCFP based on the Government’s cost of money. However, that interest rate may be modified by a payment assistance subsidy.

For example, in Los Angeles County an applicant can earn up to $44,000 a year and still qualify for the Section 502 Direct Rural Housing Program. Don’t qualify? Applicant’s can earn up to $90,000 to qualify for a Guaranteed Rural Housing Program Loan (Discussed Below).

Section 502 Single Family Housing Guaranteed Loan Program.
Unlike the Direct Loan program, these loans are provided through approved lenders, do not require a down payment, are fixed for 30 years, and carry an interest rate set by the lender. However, unlike the Direct Loan Program, the lender must also determine repayment feasibility, using ratios of repayment (gross) income to PITI and to total family debt.

Although meant to help low-income individuals or households purchase homes in rural areas, these loans have a higher income eligibility threshold. To check your income eligibility click here. These loans can be used to build, repair, renovate or relocate a home, or to purchase and prepare sites, including providing water and sewage facilities.

Approved Lenders.
  • Any State housing agency;
  • Any Lenders approved by: (a) HUD, (b) the U.S. Veterans Administration; or (c) Fannie Mae or Freddie Mac for participation in family mortgage loans;
  • Any Farm Credit System institution with direct lending authority; or
  • Any lender participating in another USDA Rural Development and/or Farm Service Agency guaranteed loan program.
For more information, please visit the United States Department of Agriculture Rural Development Home Page.

Tags: 100% financing, low income loans, USDA rural loans
Posted In: Real Estate Reporter 

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Disclaimer: The information presented on this web site was prepared by Melissa C. Marsh for general informational purposes only and does not constitute legal advice. The information provided in my articles and alerts should not be relied upon, or used as a substitute for professional legal advice from an attorney you retain to advise or represent you. Your use of this Internet site does not create an attorney- client relationship. Transmission of this article is not intended to create, and receipt of it does not constitute, an attorney-client relationship. All uses of the contents of this site, other than personal uses, are prohibited. You may print or email a copy of any information posted on this web site for your own personal, non-commercial, use, but you may not publish any of the articles or posts on this web site without the Express Written Permission of Melissa C. Marsh.

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Located in Los Angeles, California, the Law Office of Melissa C. Marsh handles business law and corporation law matters as a lawyer for clients throughout Los Angeles including Burbank, Sherman Oaks, Studio City, Valley Village, North Hollywood, Woodland Hills, Hollywood, West LA as well as Riverside County, San Fernando, Ventura County, and Santa Clarita. Attorney Melissa C. Marsh has considerable experience handling business matters both nationally and internationally. We routinely assist our clients with incorporation, forming a California corporation, forming a California llc, partnership, annual minutes, shareholder meetings, director meetings, getting a taxpayer ID number (EIN), buying a business, selling a business, commercial lease review, employee disputes, independent contractors, construction, and personal matters such as preparing a will, living trust, power of attorney, health care directive, and more.