An Arkansas Rural Development Loan is a home loan back by the Department of Agriculture that home owners and home buyers in Arkansas can take advantage of. It’s a government-insured loan that is more commonly offered by private lenders and backed by the government. When a private lender offers this loan product it is called a guaranteed loan whereas if the borrower goes directly to their local USDA office it is called a USDA direct loan. The USDA or Rural Development offers so many great benefits to Arkansas buyers.
The Arkansas rural development loan has many benefits however there are none greater than the 100% no money down feature. The USDA loan is the only loan for non-veterans that offers this feature. Homebuyers can buy a home with no money needed for the down payment. While all loan types have closing costs the USDA rural development loan is attractive in this area as well. The loan product allows the seller to pay up to 6% of the sales price towards the buyers closing costs. For example, if the sales price is $125,000 the seller can pay up to 6% of the closing costs and pre-paids items which in this case comes out to be $7,500. This is most instances would be more than enough to cover everything thus allowing the buyer to truly get into a home with no money out of pocket. Another great benefit is the flexibility of the credit requirements. Borrowers only need to be 3 years removed from bankruptcy and 3 years removed from foreclosure.
The requirements for a rural development loan or a USDA loan are set forth by the government. The only variance that can be seen between lenders is the credit score requirement. The reason for this is that the USDA technically does not have a minimum score requirement for the single-family housing program rather it's left up to the individual lender to decide what score they want to use. Most lenders are around 640-660 for their score requirements. Some go a little lower such as Primary Residential Mortgage which only requires a 620 credit and there is a handful that has higher requirements. The USDA home loan also allows for borrowers that may have a limited credit history or credit depth to use what’s called alternative tradelines. These are things that would not normally be found on a credit report such as utility bills, cell phone bills, and insurance payments. The USDA rural development loan allows lenders to establish a history on these account types to build credit.
The Arkansas USDA loan has two requirements associated with income. The first is found with all loans and that is the gross monthly income versus the total monthly debt. This is a pretty straight forward formula. The one that confuses most people is the household income requirements. This is a feature that is unique only to the USDA single-family home loan. The USDA loan is designed for low to moderate-income households in rural areas. The keyword is household. The maximum household income allowed is 115% of the median for the given area. This varies from state to state and county to county. An example would be if the median household income is $78,000 x115%= $8,970 + $78,000= $86,970. The hardest thing for borrowers to understand with this guideline is the fact its household and not just who is on the loan. For example, if there are three working adults in a home but only one of them is on the loan the other income still has to be considered as household income.
For homebuyers in Arkansas who are researching the USDA mortgage, they will find that the product doesn’t technically have mortgage insurance, however, it does have its fee type called a guarantee fee. There are two forms of this. An upfront and a yearly fee. While there are fees, they are the lowest of all loan types. Compared to the FHA loan that has a .85% monthly MIP the USDA loan only charges .35%. An example would be on a $125,000 loan the cost to the borrower for an FHA loan would be $106 per month and that same loan amount with the USDA mortgage would be $36 per month. As you can the savings are very significant.
The USDA loan is for home buyers that are located in what is considered rural areas. This is a little misleading because the majority of the United States qualifies. The larger population areas are the places that do not qualify. This is based solely on population. In Arkansas, the vast majority of the state qualifies. The major non-qualifying areas are places such as Little Rock, Jonesboro, Conway, and Fort Smith. Even in these areas buyers often buy in neighboring communities or outlining areas that are very close to the city centers. The easiest way to determine if an area qualifies is to use the USDA eligibility map on the USDA website under single-family housing program. The map is very user friendly. It is only a few simple steps. Users just need to enter the full address and hit enter and the map will not only indicate if a specific property qualifies it will also indicate if the surrounding areas qualify or not based on different colors on the map.
The amount of time it will take to complete a home loan transaction using the USDA home loan will vary from lender to lender. The vast majority of the process for the USDA loan is the same as all other loan types. The standard answer found with most lenders is 30-45 days depending on the individual lender's current work load. One difference from other loan types is when the lender is almost complete with the loan they must send the loan file to the USDA to get a commitment. Their turn times on review changes based on workload. During the busier times to can take up to a few weeks and during the slower times it may only be a few days.
There are so many great benefits to the Arkansas USDA loan. The one that stands out most often to homebuyers is the 100% no money down feature. The USDA mortgage is the only loan product for non-veterans that offers this feature. It’s a true no down payment loan. Besides this, there are several other amazing things about this loan product such as 6% seller concessions. What this means is the seller of a home can pay up to 6% of the sales price towards the buyers closing costs and pre-paid items. On a $95,000 sales price, this would be $5,700 towards these costs. In most instances, this would be more than enough to cover all of the buyers out of pocket expenses. Another great feature that we mentioned earlier was the very low USDA guarantee fee. Compared to other loan types that have a monthly fee this is by far the lowest percentage at .35%. This substantially increases homebuyer’s affordability or buying power. Credit flexibility is another attractive feature. Homebuyers do not need to have perfect credit to participate in the single-family housing program. The credit scores are set forth by the lender and are typically in the low to mid 600 credit score ranges. In addition to lower allowable credit scores borrowers also can use non-traditional tradelines to establish a credit history. Things such as cell phone payment histories and utility bills are all acceptable. While the loan product does require the home to be located in a qualifying area this is usually not an obstacle because close to 98% of the United States qualifies. For most would-be home buyers finding a home in a qualifying area is not that big of a challenge.
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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.