Keeping your nose to the grindstone, using credit wisely and responsibly, and paying your bills on time every month have their rewards, no matter how much or how little money you make.
One reward is how much easier it is to realize your piece of the American dream – the opportunity to purchase your own home. A bonus for the low-income earner is a government-backed loan with no down payment.
The U.S. Department of Agriculture Rural Development single-family housing programs may just be the best option for low-income folks with good credit and a steady job to buy a house, even among other low down payment loan options.
The Rural Development program’s roots stretch back to 1935 when President Roosevelt created an agency – the Resettlement Administration – whose sole aim was the relocation of financially distressed families during the Depression.
In 1994, the USDA went through yet another of its many reorganizations, this one placing non-farm financial programs, such as rural housing and utility programs, under the auspices of the USDA Rural Development office.
Today, the USDA’s Rural Development program helps low-to-moderate income families build, rehab, purchase and refinance homes in rural areas. This money comes in the form of direct loans, loan guarantees and grants.
Several types of home loans fall under the Section 502 “umbrella.” The two most popular are the Homeownership Direct Loan Program and the Guaranteed Loan. Both of these programs aim to help low-to-moderate-income people purchase, build, renovate or repair homes in rural areas. Both have no down payment requirement.
The key differences between the direct loan and the guaranteed loan are as follows:
Remember, the guaranteed loan is for the moderate-income borrower. It is much like the FHA loan in that the government gives the lender a guarantee of repayment in the event the borrower defaults on the loan.
The biggest difference between the USDA and FHA loans is that the USDA requires no down payment. Here are some basic benefits of the guaranteed loan:
This is the loan for you if you are low-income but have decent credit and a steady job. You will borrow for the home directly from the U.S. government. Here are just a handful of the benefits of the USDA Direct Loan program:
To use either loan, the borrower must be purchasing a home in a rural area. The USDA defines “rural” as any town with a population of “25,000 or less that is not adjacent to a large city or that is not part of a continuous urban area.”
The home must be “modest” in size. The average USDA home is 1,200 square feet. Homes with swimming pools are ineligible. The loan cannot be used to purchase income-producing property, furniture or other personal property, an existing manufactured home or for a home with nonessential buildings and land.
For a borrower to be eligible for the USDA Guaranteed or Direct Loan program you must:
Direct loan applicants must:
An easy way to determine if you or a particular property are eligible is by visiting the USDA Single Family Housing Income Eligibility website.
What are considered “dependable income”?
I have been waiting since August 2014 to hear from USDA Rural Development for a loan to do house repairs, and have not heard from them since. Is this unusual, or what?
We have had many clients who got there first home with a USDA loan and they are very happy
Thanks for the reply. I agree that rebating is a great way to help cash-strapped homebuyers but I’m a little amused that the DOJ suggests this. Do they also make this same suggestion to other industries? I’d love a rebate from my hairdresser. My pocketbook would appreciate one from my dentist and doctor!
I often wonder why the salaries of real estate agents are fair game but my plumber, accountant and dog groomer are never expected to kick back a portion of theirs. One of life’s mysteries. . .
Thanks again for the great response!
Good article: Another way the agent can help a low income buyer out is by offering them a portion of their commissions back: Cash rebates are encouraged in 38 states to help home buyers save money: The US Department of Justice even recommends real estate agents give cash rebates to buyers. However, most agents do not offer this to their clients and 9 out of 10 home buyers do not realize they can get cash back. A one percent rebate on a $300,000 home will save the low income buyer $3000. As former top producing mortgage banker for Wachovia Bank this is something that I didn’t realize until later on in my career:
When I asked my real estate agent how much she usually gives back to the buyer, her answer was “Only one client has asked me for a cash rebate in 12 years!” I found this astonishing since asking that one question can easily get you thousands of dollars back at closing.