USDA Rural Development (RD) Loans in Iowa

USDA Loan Iowa Eligibility Requirements

What are the Credit Requirements?

The minimum credit score for a USDA loan is 640 (automated approval).

Income Limits

In order to be eligible for USDA assistance, you must have a total household income that does not exceed 115% of the national average. Lowest county limit is $110,650 for 1-4 in household, up to $146,050 for households between 5 and 8 people. Some counties are even higher like Linn and Johnson.

Primary Residence, Owner Occupied

Only owner-occupied properties can be financed with USDA loans. As a result, you must reside in the home as your primary residence.

Guarantee Fee

In order to qualify for a USDA loan, you must pay two guarantee fees (similar to mortgage insurance). A 1% guarantee fee is charged upfront and financed into the loan, as well as a .35% guarantee fee added to your monthly payment.

Property Eligibility

Due to the fact that USDA loans are intended for communities with populations of less than 35,000, they are not available for financing properties in larger cities or towns.

US citizen or permanent resident

In order to qualify for a USDA loan, you must be a permanent resident or US Citizen.

How is the process different for a USDA loan at Residential Mortgage Network vs. a local bank?

When it comes to RD loans, where you get your loan from DOES matter. Other lenders may discourage the program by claiming that financing will take longer when that is simply not true. At RMN, we underwrite all of our loans in-house.

We are a mortgage bank, not a broker, meaning we are in complete control of the process from start to finish. We can simply walk down the hall to talk to our processors and our underwriters, so things get done immediately. There isn’t a better way to explain it – it is just that easy! Many other mortgage companies in Iowa can’t say the same.

Because of this, we are able to meet quick financing deadlines so your closing does NOT take longer with an RD loan. Most importantly, we aren’t scared of the program. We know how to get them done just like a conventional loan – we have literally done thousands of them.

What is the Guaranty Fee?

Some lenders that don’t understand the program try to scare buyers by telling them the PMI is expensive when in reality, it’s not! The Guaranty Fee is a 1% fee added (financed) to the loan plus a small monthly fee that reduces as you pay down your loan balance. When compared to a Conventional loan at a higher rate (and often a higher PMI) it is much more competitive and inexpensive.

In addition to that, the 30-year fixed rate is typically lower than a regular conventional loan. It is certainly more stable than an adjustable-rate mortgage (ARM) that is often pushed by banks that don’t know how to efficiently process and close USDA loans.

Home Condition Requirements

Some lenders discourage the use of the Rural Development loan because they say the home must be in “perfect condition.” That’s not true! There are a few requirements, but they are (in most cases) an easy fix or something that can be addressed upfront. Some of these requirements include: chipped/peeling paint, bad roof or handrails on stairways.

The home condition requirements for a Rural Development loan are not “stricter” than any other program. Ultimately, the home you are buying should not have these issues by the time of your closing no matter what loan program you choose!

Advantages of the USDA Rural Development Program

●      No Down Payment: There is usually a minimum down payment on most loans. Depending on your specific financing option, the percentage can range from 3.5 to 20 percent. Other factors, such as your work history, credit score, and your debt-to-income ratio, can also impact the percentage. Nevertheless, the USDA does not require borrowers to have a down payment.

●      Finance Your Closing Costs: Generally, you cannot pay your closing costs with your loan (also called rolling in your closing costs). If, however, the house appraises for more than the sales price, USDA loans allow borrowers to consolidate their closing costs. The extra amount you borrow goes to cover closing in this situation.

Using a USDA Rural Development loan, you can finance up to 100% of the appraised value plus the guarantee fee. Therefore, if you want to purchase a home with a USDA loan, the house appraises for $300,000, then you can get a loan for $300,000 plus $3,000 guarantee fees (1% of the loan amount). In this case, you’d get a total mortgage of $303,000.

●      Great Interest Rates: With USDA loans, borrowers are able to save money because the interest rates are lower than those offered by other mortgages. If you spend less money on interest, you will have more money to use for other daily expenses or to invest and use in the future.

●      Low Mortgage Insurance: Usually, lenders who allow borrowers to purchase homes with low down payments require them to buy mortgage insurance to protect their loans. In other words, if you put down less than 20%, the lender faces a greater risk than if you put down at least 20%. A mortgage insurance policy helps to minimize this risk. Mortgage insurance on conventional (non-government-backed) loans is known as private mortgage insurance (PMI). There is no PMI requirement for USDA loans; only conventional loans require it. Additionally, PMI is only required for loans where the homeowner has less than 20% equity. In contrast to government-backed mortgages like FHA, mortgage insurance on USDA loans, called the “guarantee fee”, is less expensive.

●      Fixed Interest Rates: USDA home loans come with fixed mortgage rates. A fixed-rate mortgage does not fluctuate or adjust like an adjustable-rate mortgage (ARM), which can cause sudden spikes in interest rates and payments.

Buying a Home with a Rural Development Loan

If you or anyone you know is looking to buy a home in an eligible area, then an Iowa Rural Development loan may be the right loan program for you! Please feel free to contact us or give us a call to discover your eligibility.