RD Loans are Perfect for First Time Home Buyers in Iowa

Americans across the U.S. are moving out toward the suburbs and rural areas—and it doesn’t look like this trend is going anywhere anytime soon!

Some people may have believed that the migration of many Americans from cities to suburbs was a Covid-19 fueled phenomenon. However, data suggests that this shift began long before the Covid-19 pandemic (actually began in 2010) and has steadily increased to the current day, where it is still happening across America in 2023! 

According to this Forbes article on 2023 moving trends, metropolitan areas across the U.S. “…saw reductions of nearly 5 million people who packed up and moved to the suburbs” so far in 2023—and that shift doesn’t seem to be losing steam. 

That’s where we come in. If you’re a home buyer looking to move to a more rural area in Iowa, you might want to continue reading! We have a loan option specifically for Iowa buyers looking for a community of 35,000 people or less that requires a $0 down payment.

What is a USDA Rural Development Loan?

USDA loans in Iowa are available to buyers looking to purchase a home in a community with a population of 35,000 or less. This encompasses Tiffin, Kalona, Swisher, Newton, Washington, Williamsburg, Solon, Grinnell, Atkins, Palo, and many more. There are eligible towns in all 99 Iowa counties! And an important distinction we want to note, rural doesn’t mean you have to be living far out from civilization! Many of these options are within commuting distance of nearby towns and cities. 

Many Iowa buyers are eligible for this program, making it a great option, no matter the purchase price! It’s a great program for any stage of buyer—first time or subsequent. For first-timers especially, it is a GREAT way to get into a home with no down payment. To take advantage of the Rural Development Loan program, you must meet the following eligibility requirements:

  • Occupy the home you’re purchasing as your primary residence
  • Be a U.S. citizen or permanent resident
  • Meet standard credit criteria (640 or better credit score)
  • Make gross wages within the 2023 USDA Income Limits

Recently, the USDA 2023 Iowa income limits increased! They still vary by county, but they are now higher than they were—even last year. For example, for a 1-4 person family that lives in Johnson County, the income limit is $132,700, and for Linn County residents, it is $110,650. This new income limit increase is GREAT news for everyone because it means more and more people can qualify for this amazing loan program. If the RD income limits still worry you, know that some eligible monthly expenses can be deducted. Let us calculate your income!

Home Condition Requirements

Some lenders discourage using the Rural Development loan because they say the home must be in “perfect condition.” That’s simply 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, roof with less than 2 years of remaining life, or missing 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, so don’t let this deter you. 

Fixed Rate Condo Financing with RD loans

Financing for a condo is different from financing for a single-family home or a zero-lot line. For example, some lenders will only offer an adjustable-rate mortgage (ARM) if you’re purchasing a condominium—which could cost you more in the long run!

You can finance a fixed-rate mortgage for a condominium with a Rural Development loan if the condo project meets program requirements. The majority of condo projects in our market meet the requirements and are eligible for approval. The lender you’re talking to needs to understand how you can get those condo projects approved, and they have to have the authority to submit them for approval. RMN has gotten hundreds, if not thousands, of condos approved all over the state of Iowa, including Johnson County, Linn County, and surrounding areas. We understand how to approve the condos and how to fit the process into our timeline so that we do not miss any deadlines.

Will the home buying process take longer with an RD loan?

When it comes to RD loans, where you get your loan from DOES matter. Other lenders may discourage the program 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 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 can 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 done thousands of them.

First Time Home Buyer?

One of the biggest hurdles to home ownership is the down payment—which is why we often recommend the USDA Rural Development loan to an Iowa First Time Homebuyer. The RD loan requires a $0 down payment. Yes, you read that right! Homeownership is attainable with this loan program if you are looking in eligible towns.

If you have money saved for a down payment, no problem! The RD loan is still a great option with some down payment for your first home purchase. However, some buyers who have saved up enough money for a down payment choose to keep the money and use it towards repairs/improvements or pay off other debt to make their house payment even MORE affordable.

Another reason we recommend this program to an Iowa First Time Homebuyer is that there is typically a lower interest rate compared to other loan programs. You can get 100% financing through the Rural Development program and still pay a lower interest rate than Conventional. There is a Guarantee Fee (a 1% fee financed into the loan plus a small monthly fee which reduces as you pay down your loan balance) included with 100% financing, similar to private mortgage insurance (PMI). However, with the lower, fixed interest rate—you’ll still come out ahead!

In addition, a First Time Home Buyer will have a major advantage working with RMN. We answer all our borrower’s questions and walk them through the process—from start to finish—ensuring a smooth transaction.

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 and get started today.