If big-city living is taking a toll on your finances, you might consider moving to the country. Real estate in rural areas is significantly less expensive than in urban areas, and it comes with the benefit of space and privacy that city living can't provide. In an effort to support community development in rural areas, the United States Department of Agriculture provides direct loans and guaranteed loans to low-income individuals and families through the Rural Housing Service, or RHS.
To qualify for a rural loan, the home or land for purchase must be located in a town that is not associated with a metropolitan area. The population must be fewer than 10,000 people, though some communities with fewer than 20,000 people qualify. Mortgage credit for low-income buyers must be lacking. To see if a property qualifies, you can use the interactive map on the USDA website. If you're looking at properties in Arizona, California, Illinois, Kansas, Mississippi, Ohio or Oklahoma, you'll want to click the "Additional Eligible Areas" map link to view newly approved areas not reflected on the map.
To qualify for a rural loan, you must have a very low to low income based on the average median income, or AMI, in your area. Very low incomes are defined as below 50 percent of the AMI, while low income is between 50 and 80 percent of the AMI. To check whether your income qualifies, use the "Income Eligibility" checker on the USDA website.
To qualify for a loan, you must be without adequate housing but have the financial means to afford a monthly mortgage and the associated fees, such as taxes and homeowners insurance. In addition, your total monthly debts must be less than 41 percent of your gross monthly income. A "reasonable" credit history is also required, though you should be unable to secure traditional financing through a private lender.
Rural loans have a 30-year fixed term and require no downpayment or private mortgage insurance. Interest rates are set by the lender for guaranteed loans and begin at 1 percent for direct loans. A major stipulation is that you use the money to build or renovate a house that is modest in size, design and cost when compared to other homes in the area. In addition, the loan amount can't exceed the appraised value of the home.
The Rural Housing Service provides two types of rural loans: the guaranteed loan and the Direct Home Ownership Loan. The primary difference between the two programs is that the guaranteed loan is offered through a private savings and loan institution, while the Direct Home Ownership Loan Program is financed directly through the RHS. Most rural loans provided by the RHS are guaranteed loans.
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