There are many steps in the home buying process, but the first thing you want to do is get pre-approved with a mortgage lender. This is important for three reasons:
1. You will get a better idea of how much house you can afford.
2. The lender will give your realtor an approval letter that makes any contract offer stronger.
3. You learn about the various loan programs you’re eligible for.
Many home buyers aren’t aware that there are many different types of mortgage loan programs available. Today, we’re discussing one of the lesser known loan programs.
The Rural Development (RD) loan is offered to rural property owners by the United States Department of Agriculture. The most popular feature of USDA Loans is that it offers 100% financing to qualified buyers; that’s right, no money down.No money down loans might seem too good to be true, but this may be the loan for you if you don’t have a ton of cash saved up and want to live in a rural area. Rural Development means just that, this loan is only available in rural areas.
What is considered a rural area?To determine what qualifies as a rural area, your mortgage lender will enter a potential property address into the USDA RD eligibility website to find out if the RD loan is a option. Keep in mind, in Middle Tennessee, there are some areas in the outskirts of Murfreesboro and Mt. Juliet that are currently eligible for the RD loan, so it’s not like you have to live in an extremely rural town. In fact, 97% of the country is in an eligible area.There are also guidelines you must meet to qualify, including income limits. Typically, in the Middle Tennessee area, the maximum income amount is in the $78,000-80,000 range; it depends on the county and number of people living in the household. Minimum credit scores are also required. Typically, a 640 credit score is necessary. Most often, your debt-to-income ratio (monthly debts divided by gross monthly income) can’t exceed 41%.
If you are eligible for the RD loan, there are multiple ways it’s a tremendous value:
1. Cheaper mortgage insurance There are mortgage insurance fees, both upfront and monthly, but it’s cheaper than another popular government loan, the FHA. The upfront fee (“guarantee fee”) can be financed, so you won’t be paying that out of pocket, and it is currently 1.0% of the loan amount, compared to 1.75% for the FHA.The monthly fee is 0.35% of your loan balance divided by 12. For a $150,000 balance, your monthly mortgage insurance payment works out to be $43.75, which is a substantial savings compared to the FHA loan, which is typically 0.85% of your current balance ($106.25/month in the same scenario).
2. Low interest rates RD rates are extremely competitive. Local mortgage loan originator with F&M Mortgage in Brentwood, Andrew Chelton, says, “Our interest rates on the RD loan are typically the lowest possible rates we can currently get on any loan program.”
3. The aforementioned no money down It doesn’t get much better than that – no money down means you get to keep more money in your pocket for house updates, repairs, or emergency funds.
Andrew adds, “The combination of no money down, cheaper monthly mortgage insurance, and fantastic rates currently makes this loan the best bang for your buck.”
---For more information on the USDA RD loan or to find out if you’re eligible, contact Andrew Chelton with F&M Mortgage at andrew.chelton@myfmbank.com or 615-400-2086.
