The Rural Housing Service (RHS), within the U.S. Department of Agriculture (USDA), makes financing available in rural areas through its Section 502 guaranteed loan program. The loan funds can be used to build, repair, rehabilitate, renovate or relocate a primary residence, or to purchase and prepare a site for one, including providing water and sewage facilities. The housing must be modest in size, design and cost, and meet the voluntary national model building code adopted by the state and HCFP thermal and site standards.
This program is similar to that offered by the federal VA, as both involve loans with a 30- year term, a fixed interest rate set by the lender, no required down payment and an upfront 2% guarantee fee (which may be financed). However, the USDA guarantee applies to 90% of the loan. Lenders for this program include state housing agencies and lenders approved for participation in FHA, VA, Fannie Mae or Freddie Mac loan programs.
Loan applicants must:
- be without adequate housing.
- have less than 20% liquid assets (not including retirement accounts).
- have a steady income of up to 115% of the median income for the area, have a reasonable credit history and be able to afford the mortgage payments, including taxes and insurance. The lender must determine repayment feasibility, using 29% housing-to-income and 41% debt-to-income ratios.