Understanding USDA RD Loan Requirements in Arkansas

The USDA Rural Development (RD) loan program offers many benefits for eligible homebuyers in Arkansas. Also known as the Section 502 program RD loans require no down payment and offer competitive interest rates. However there are requirements borrowers must meet to qualify. In this article, we’ll break down key RD loan eligibility and underwriting requirements for Arkansas.

Overview of RD Loans in Arkansas

RD loans are government-backed mortgages for low to moderate income borrowers in rural areas Key features include

• 100% financing – No down payment required
• Below-market interest rates – Currently around 5% for 30-year fixed
• Low mortgage insurance – 0.35% of loan amount yearly

In Arkansas, eligible locations include smaller cities and towns like Russellville, Arkadelphia, and De Queen. RD loans can be used to purchase existing homes or build new construction.

Now let’s explore the specific program guidelines and eligibility standards you’ll need to meet

RD Property Requirements in Arkansas

The home you purchase or construct must meet certain criteria to be eligible for RD financing:

• Location must be in a USDA-designated rural area
• Existing homes must be decent, safe, and sanitary
• New construction must meet all local building codes
• Properties can be single-family homes, townhomes, or even manufactured homes on permanent foundations

In Arkansas, eligible rural areas include towns with populations under 25,000 as well as some suburban outskirts of cities like Little Rock and Fayetteville.

Borrower Eligibility Requirements

To qualify for an Arkansas RD loan, you must meet certain eligibility standards:

Citizenship – You must be a U.S. citizen, U.S. non-citizen national, or qualified alien.

Income Limits – Your household income must be below the limit for your county and family size. Limits range from $60,000 to $110,650 in Arkansas.

Credit History – Most lenders require a minimum credit score of 640-680. Past foreclosures or bankruptcies may be allowed with proper documentation.

First-Time Homebuyer – You can have owned a home previously, but certain restrictions apply if you still own other property.

Homebuyer Education – You must complete an approved homebuyer course if you are a first-time buyer.

Debt-to-Income – Your total debt payments should not exceed 43% of gross monthly income to qualify.

Meeting these requirements ensures you have the means and financial stability to afford the mortgage.

Loan Amount and Down Payment Rules

A major benefit of RD loans is that no down payment is required. However, there are some guidelines around loan amounts:

• The maximum loan amount in most Arkansas counties is $356,362 for a single-family home. Higher limits apply in certain higher-cost areas.

• You may be able to finance up to 100% of the appraised value plus the upfront guarantee fee. Close family members can also gift you the cash for closing costs.

• The loan amount may not exceed the property’s appraised value. And the sales price can’t exceed the appraisal either.

This combination of flexible financing and appraisal guidelines allows buyers to truly access 100% financing.

Interest Rates for Arkansas RD Loans

USDA RD mortgage rates are very competitive, even with today’s rising rate environment. Here’s an overview:

• Rates are set by the USDA based on current market rates

• 30-year fixed rates are commonly around 5% as of late 2022

• 15-year fixed rates are slightly lower in the mid to high 4% range

• Rates come with a lock period allowing you to lock in the rate for 60-90 days while going through the process

Always ask your lender for an accurate rate quote based on your specific loan scenario.

Mortgage Insurance and Annual Fees

With an RD loan, you’ll pay two ongoing fees:

Upfront Guarantee Fee – 1% of the loan amount charged at closing and can be financed into your mortgage. On a $200,000 loan amount, this fee would be $2,000.

Annual Fee – 0.35% of the loan amount per year. On a $200,000 mortgage, you would pay $700 annually divided into your monthly mortgage payment.

How to Apply for an RD Loan in Arkansas

To get the process started, follow these steps:

• Check your eligibility and property options within eligible rural areas in Arkansas.

• Find and make an offer on a home that meets RD requirements. Make sure there is an appraisal contingency.

• Apply with an approved USDA lender. Provide all required documentation to verify your eligibility.

• Work with your lender to process the loan application and underwriting.

• Once approved, work toward closing and fulfill any final conditions.

The lender will guide you through next requirements. You can also get pre-approved to strengthen offers.

The Bottom Line on Arkansas RD Loans

RD loans offer a great opportunity for eligible buyers to purchase a home with no down payment and at competitive rates. Just be sure you fully understand the property requirements, borrower eligibility guidelines, and loan qualification process when pursuing 100% USDA financing. Connecting with an experienced lender familiar with the program is key to navigating the loan process smoothly.