USDA Single Family Housing Programs | TMH 023
In this post I am going talk about the USDA Rural Development Single Family Housing Programs, their requirements, and why I was drawn to their Direct Loan program.
First, these programs are only available in rural areas. Areas are considered “Rural” if they have a population of less than 35,000. This map shows eligible areas highlighted in orange.
If you live in a rural area, or want to move to one, these are the six Single Family Housing Programs that the USDA offers:
Provides funds for Elderly and Very-Low Income homeowners.
More information in the future if needed.
Used to purchase and prepare a site (by an organization) for low and moderate. income homes.
Used for qualified organizations to carry out local self-help housing construction projects (akin to Habitat For Humanity) for very-low- and low-income individuals and families.
Can be used with the Rural Housing Site Loans above.
Provides grants to organizations for the repair or rehabilitation of housing owned or occupied by low- and very-low-income rural citizens.
This program is currently closed.
More information in the future if needed.
A loan from a private lender that is guaranteed by the USDA for moderate income households.
More information below.
A loan directly from the USDA for very-low and low income households.
More information below
Here is a little more information on Guaranteed and Direct Loans, which are probably the most useful for those who want to buy or build a home. While there are some differences - see this PDF from the USDA comparing them both (it is from Georgia’s USDA, but applies to all states) - by comparing the two programs, and looking at the income limits for a given area, it should become clear which loan best suits the borrower.
Again, USDA Guaranteed Loans are loans from private lenders that are guaranteed by the USDA. It is designed for moderate income households. USDA Direct Loans are loans that come directly from the USDA and are designed for very-low and low income households. This Eligibility Portal can be used to view income limits for both Guaranteed and Direct loans. This portal also shows eligible areas. Also, this portal can be used to calculate a loan estimate on the Self-Assessment tab.
For both Guaranteed and Direct Loans:
Applicants do not need to be first time home buyers, but cannot have owned a home in the last three years.
Borrowers must occupy the home.
For Direct Loans, borrowers must be unable to obtain a loan from other resources on terms and conditions that can reasonably be expected to meet. This is very vague language, and I will give more info in a future post.
Properties must be located in a rural area - See Portal and tab for Guaranteed and Direct.
Applicants/households must adhere to income limits - See Portal and tab for Guaranteed and Direct.
No down payments are required if non-retirements savings do not exceed a given amount. I am not including amounts because it is subject to change.
Closing costs can be rolled into the loan.
For Direct Loans the homes must be “modest”. This means 2,000 square feet or less (larger households may be able to purchase/build a larger house with approval) and no in-ground swimming pools. This does not apply to Guaranteed Loans.
Sites for construction of a modest home must also be “modest”. A modest site is one that cannot be subdivided based on local ordinances. More info on that in a future post.
Cannot be an income producing property.
Loans can be used not only to purchase a home but to purchase and make necessary repairs.
A very cool feature of both loans is the diversity of the home types that the loans can be used to purchased :
An existing Single Family Home.
New Construction (a developer purchases land, builds a single family home, and then sells).
Proposed Construction and Site Built.
Modular Homes.
Manufactured Homes (this would be a manufactured home on real property, not in a park with space rental. MHs on private property is more common in rural areas).
Planned Unit Developments (PUD)
Condominiums.
Most importantly - this is really amazing - both loans can be used as Single Close Construction Loans, but there is a catch. Please read on...
Both Guaranteed and Direct Loans can be used as Single Close Construction Loans. This is what makes USDA loans so desirable. FHA construction loans are not offered by many lenders, so they are very rare. For Guaranteed loans, there are currently no lenders in California offering them, so the Direct loans are even more desirable.
A brief explanation on how a single close construction loan works:
Loan is approved.
Site is purchased if not already owned. Seller is paid.
Money is placed in escrow for construction costs and is drawn upon when milestones are met.
Construction is completed.
Closing with Closing Cost takes place. This is the draw of the single close loan. If there were multiple closings there would be multiple closing costs.
Needless to say, there are a good deal of other topics to discuss here, and areas to dive deeper into. So please stay tuned!
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