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A Louisiana rural development loan is a home loan that is backed by the United States Department of Agriculture more commonly referred to as the USDA. The USDA home loan has many benefits to Louisiana home buyers. Before diving into the benefits it's important to understand how the loan is facilitated. There are two types of USDA loans. The Direct USDA loan is where home buyers work directly with their local USDA field office to obtain a loan. The Guaranteed USDA loan is where home buyers with a private lender to obtain a USDA loan. These loans are underwritten and serviced by private companies but are backed by the USDA. While the government is not actually lending the money for the loan they still make the rules and regulations since they backed the loans against the customer’s default.
There are several benefits to the USDA loan. The most obvious is the 100% no money down feature. Homebuyers can purchase a home in a qualifying area with no out-of-pocket money for down payment.
The rural development home loan also is very flexible when it comes to credit. Borrowers only have to be removed from bankruptcy and foreclosure for 3 years. The USDA loan does not have a minimum credit however that is left up to the lender. This varies from lender to lender with the most common minimum scores being 620-660. Another great credit-related feature is that this loan product allows borrowers with limited credit to participate. People who have not established credit history can use alternative credit tradelines such as utility bills, cell phone bills, and auto insurance. Another great feature is that the seller of the home is allowed to pay up to 6% of the sales price towards the buyers closing costs and pre-paid's. On a $100,000 loan, this is $6,000 which in most cases would be more than enough to cover all the costs. This is most cases allows homebuyers to buy a home with no out-of-pocket expenses.
It is common knowledge that when a home buyer doesn’t have at least 20% for down payment they often have mortgage insurance. When a home buyer is purchasing a home using the Louisiana USDA rural development loan, they will not have traditional mortgage insurance however USDA has a monthly fee called the Guarantee Fee. The USDA Guarantee Fee is charged to the borrower and those funds are used to funds the USDA Single Family Home Loan Program. The great news for buyers that use the USDA loan is that the factor used is almost always much lower than the mortgage insurance on other loan types. For example, an FHA home loan that is $100,000 will have a monthly MIP of $85 however that same $100,000 loan using the USDA home loan with have a monthly Guarantee Fee of $27.
One of the first questions many people ask when seeking a USDA mortgage is often about the minimum credit score needed. This is a little bit of a tricky question with varying answers. The USDA home loan does not have a minimum credit score set forth by USDA under the Single-Family Housing Program. The credit score for the loan is set by the individual lender. Some lenders are more conservative than others. The vast majority of lenders currently require between a 620-640 credit score. There are some that are a little high and some that are a little lower.
Rural Development Louisiana loans are typically done or completed in 30-45 days. A large part of the total turn times is based on the lenders' workload. If a mortgage company is backed up in underwriting it could make the transaction take longer. There are also a few variables that are beyond the lender's control such as the appraisal and title work. If the appraisers in the immediate area are taking longer than normal this could impact the transaction. The same logic is applied to the local title companies. The second main factor outside of the lender that impacts the total transaction time is the local USDA offices. When a lender has completed the underwriting of a USDA home loan, they must then send the loan file to the local USDA office for review. If all items are in order the USDA office will issue a commitment that indicates the loan meets their standards and is go to go. In off-peak times these USDA turn-times are usually 1-2 days however during peak times in the summer it's not uncommon to see those times get to several weeks.
The USDA home loan has a debt to income requirements like most other loan types. These will vary from loan type to loan type. It's based on total monthly gross income versus total debts. The rural development loan also has an additional income requirement. Its referred to as household income. By definition, the USDA Single Family Loan Program is for low to moderate-income households in rural areas. The keyword in this is households. The program will allow the total household income to go up to 115% of the median income of a given area. The total debt ratio calculation mentioned earlier is applied to only individuals on the loan but in this scenario, it’s all people living in the home. An example of this would be if the median income for a given area is $72,000 x 15% = $10,800 + $72,000 = $82,800 maximum household income. This will vary from county to county and state to state depending on the incomes of the area.
The Louisiana USDA home loan can be used to purchase a home buyer's primary residence. Single-family investment properties and multi-family investment properties are not eligible under the program. Additionally, commercial properties are not allowed as well. The program is specifically designed for owner-occupied single-family properties. The USDA Single Family Loan Program also has a restriction on home buyers owning more than one property. For example, if a would-be home buyer owns their current home and wants to move and buy a new one they must sell the existing one first.
Typically any mortgage lender can participate in the USDA loan program however not all do. Because the program has some unique characteristics not all lenders offer the USDA home mortgage. It is usually a good practice for a borrower to interview a lender before fully committing. It's not enough to know that the lender can offer the USDA home loan but also that they have a firm understanding of the product inside and out. Companies like Primary Residential Mortgage Inc do a significant amount of Louisiana USDA loans and have a good understanding of the areas and the product.
The USDA eligibility map for Louisiana and all other states can be found on the USDA website under the Single-Family Housing Program. The map reflects what areas are eligible and what areas are not. It's often misleading when it refers to rural areas because it's usually more outlying areas versus rural. The map determines eligible areas based on population. A good rural of thumb is populations below 20K typically qualify. Close to 98% of the United States qualifies for the USDA home loan.
Some products and services may not be available in all states. Credit and collateral are subject to approval. Terms and conditions apply. This is not a commitment to lend. Programs, rates, terms and conditions are subject to change without notice.