Posted by: Larry Stevens | November 1, 2012

5 Reasons USDA Rural Development Works for First Time Home Buyers

First time home buyers have a challenge in front of them. Finding a real estate agent to help in the house hunting, finding a bank to finance the home, getting moved and settled in…it can be a bit much. What if you could ease the pain a bit with some knowledge? Did you know there’s still a mortgage loan option out there in today’s housing market that allows a buyer to finance 100% of the home price? That’s big, when almost every loan requires some kind of down payment. The USDA rural development option is in rare company in this category. And it can be great for buying that first home.

So, what is the rural development mortgage option? Under the Guaranteed Loan program, USDA rural development guarantees loans made by private sector lenders like AmeriFirst Home Mortgage. A loan guaranteed through RD means that, should the individual borrower default on the loan, RD will pay the private financier for the loan. You work with AmeriFirst and make your payments to us.

That’s the official jargon explanation. In short, it means you can buy an eligible house without a down payment. You’ll still need cash-to-close for things like funding your escrow account, but that adds up to less money when there’s no 5% down payment tacked on.

Why does USDA rural development work well for buying your first home? Let’s take a look at 5 reasons:

  1. Rural development eases the down payment burden. The loan is one of only two 100% financing options available right now, with the other being a VA mortgage loan which requires the borrower have Military Veteran status. Of course, 100% financing means you don’t need a down payment (buyers may need cash at closing for other costs like inspections and insurance though).
  2. You get to look for a house that could have a big yard. While “rural” doesn’t have to mean “out in the country,” it does often result in a house with some kind of yard. Many villages and smaller towns fall into the rural category. Most of these homes have a decent yard, some of them even have big yards. A yard with your first home could be the difference between settling for an okay house and finding your dream home the first time around.
  3. “Property type” restrictions can be more forgiving. It’s tough to finance a modular home or new-manufactured houses. With USDA rural development, those homes are a possibility. Sometimes this style of housing is right up the first time home buyer alley.
  4. Minor repairs are allowed in the financing. This loan actually allows a little more than 100% in some cases, letting the borrower make some minor improvements. With your first home, there are often some projects you’ll need to do after moving in.
  5. No pre-payment penalty. With no down payment requirements, you may end up with cash on hand to help you get ahead. In a couple years, you may find yourself ready to pay more and pay it off early. You won’t be punished for this.

Here’s a bonus benefit: No limit on seller concessions or gift. This means the seller can pay closing costs – and there is no limit to the amount like other loan programs. This is great for first time home buyers with very little liquid assets available.

Want to see an example of areas eligible for this option? Take a look at 7 homes you could buy with USDA rural development.

Learn more about this option with our USDA rural development vs FHA loans comparison sheet. Click the button below for that.

Compare FHA vs Rural Development

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