Buyers who are considering financing a home in a rural area often find that it is harder to get approved for funding than it is for a home that is nestled in suburbia. Lending requirements are often too strict for lower income farmers and rural residents. Appraisal guidelines are often too stringent for many older homes or farmhouses.
To ease the burden of the potential home buyer and seller the Rural Housing Service (RHS) offers loans just for people looking to purchase older homes in rural areas. The service is a division of the US Department of Agriculture partnered with Fannie Mae on section 502 which guarantees rural housing loans and rural direct leveraging loans. These loans generally require no down payment for low to moderate income purchasers.
Fannie Mae also offers the MyCommunity MortgageTM loan program. It features flexible loans for rural residents, including low income limits and more lenient appraisal guidelines (so that lenders can make the loans more easily).
Why would you choose a rural housing loan?
As with any loan, you should always check around for the best rates, as well as for a lender you trust. But these loans are attractive because:
- You need less cash up front than for an FHA loan.
- The required income is limited.
- No cash reserves are required to exist in your savings account at closing.
- The interest rates on the rural direct leveraging loan are usually below market rates.
To be eligible for such a loan, a borrower's income is limited to 115% of the area's median income (for the guaranteed loan), or 80% of the adjusted median income (for the direct leveraging loan).
Eligibility is for homes located in rural areas, with a population of less than 10,000. Outside of metro areas, the town population limit may be as high as 20,000. The home must be a single-family, owner occupied residence, this also includes new construction. The home can not not be a farm, and it must be your principal residence.
Most of the loans under the direct loan program are made to families with income below 80% of the medium income level in the area. These people would normally not qualify for a conventional loan, so it enables many more people to own homes.
The guaranteed loan program, still a part of section 502, allows borrowers to get up to 100% financing on their home. Many low income individuals are not able to save up a down payment, so this assists them in achieving home ownership. Under the guarantee, the Housing and Community Facilities program promises to pay the private lender or back if the borrower defaults on the loan.
In addition to the section 502 loans, the Rural Housing Service provides many financing opportunities for low income buyers in rural areas. They also offer loans to farmers, the elderly, disabled persons, and rural residents who live in multifamily housing. The RHS offers grants and loans for people who need to repair their homes. If you believe you would qualify for one of these loans, you should investigate the RHS and Fannie Mae. Speak with your lender about the programs, or learn more by visiting the RHS website.