If you’re looking to buy or build a home in a rural area and have limited funds for a down payment, you may be interested in a USDA construction loan. Also known as One-Time Close Construction loans, these loans help low- to moderate-income families secure the funds necessary to build or repair homes in rural areas. Before applying for a USDA construction loan, however, it is important to understand the eligibility requirements, as well as the pros and cons of this type of loan. In this guide, we’ll walk you through the important USDA construction loan requirements to help you determine if this type of construction loan is right for you.
Income Limits
USDA construction loans have income limits that are unique to the program. These loans are designed to help low- or moderate-income mortgagors finance home purchases. The income eligibility limits typically cap total household income at 115% of the median household income for the area where you plan to live. However, the income limits can vary based on the county and state in which you intend to live. It is therefore important to check the USDA’s single family housing income eligibility guidelines to determine whether or not you qualify.
Location
To be eligible for a USDA construction loan, the home must be in a USDA-designated area. The USDA determines which areas are considered rural based on several factors, including proximity to urban areas, population size, and population density. Typically, USDA-approved areas have a population of fewer than 10,000 residents, although some areas with populations of up to 35,000 may also qualify. It’s important to check with the USDA or your lender to confirm if a specific property is located in an eligible area before applying for a loan.
Total Household Income
The USDA loan program is unique among government-backed loans, as it requires borrowers to include the income of every person who will be living in the home, regardless of whether they are applying for the mortgage or not.
Should You Get a USDA Loan?
It’s worth mentioning that while USDA construction loans do not require a down payment, there are other fees and closing costs associated with obtaining the loan, such as title insurance, appraisal fees, and mortgage insurance. These fees can add up and should be factored into your total costs.
Additionally, it’s important to note that the interest rates for USDA construction loans can vary depending on the lender, loan term, and other factors. While they may be lower than some other types of loans, it’s still important to compare rates and fees between lenders to ensure you’re getting the best deal possible.
Overall, USDA construction loans can be a great option for those looking to build or renovate homes in rural areas of the United States. If this sounds like something you could benefit from, the next step is to contact us at HomeLander Mortgage. We’ll be happy to walk you through the process of securing a USDA construction loan for your next property today!
