Everything You Need to Know About the Rural Development Loan Program in Illinois

The Rural Development Loan, also known as the USDA home loan, is an excellent financing option for homebuyers in rural parts of Illinois With competitive interest rates and 100% financing, this program makes homeownership achievable for many.

In this comprehensive guide, we will cover all the key details about the Rural Development loan program in Illinois, including eligibility requirements, loan terms, and the application process. Whether you are a first-time homebuyer or looking to refinance, read on to see if this loan is right for you!

What is the Rural Development Loan Program?

The Rural Development Loan program is administered by the United States Department of Agriculture (USDA) to promote homeownership in rural communities.

Instead of lending money directly, the USDA approves private lenders to offer Rural Development loans This includes banks, credit unions, and mortgage lenders across Illinois

Rural Development Loan Benefits

Here are some of the main benefits of the Rural Development loan program in Illinois:

100% Financing – Borrowers can receive a loan for up to 100% of the appraised value of the home. This means no down payment is required. Closing costs can also be financed into the loan.
Low Interest Rates – Interest rates are set by the USDA and are very competitive, often lower than conventional loans. Applicants with lower incomes may qualify for an even lower interest rate.
Flexible Credit Guidelines – Credit standards are more flexible than conventional loans. Applicants with less-than-perfect credit may still qualify.
No Prepayment Penalties – Borrowers can pay off their loan early with no prepayment penalties.

Rural Development Loan Requirements

While the Rural Development loan offers great benefits, borrowers must meet certain eligibility criteria:

Location – The home must be located in a rural area as designated by the USDA Property Eligibility tool. Generally, rural areas are outside major metropolitan cities.
Income Limits – Total household income must be below the limit for the area. View income limits by county here.
Citizenship – Applicants must be U.S. citizens, permanent residents, or qualified non-citizens.
Occupancy – Applicants must intend to use the home as their full-time residence.
Debt-to-Income – Overall debt-to-income ratio must be below 41% and the new mortgage payment cannot exceed 29% of gross monthly income.
Property Types – Single family homes, townhomes, and condos in designated rural areas are eligible. No more than 5 acres of land can be financed along with the home.

How Much Can You Borrow?

The maximum loan amount depends on your income, existing debts, and the appraised value of the property. There are no set loan limits. As long as you meet the income and debt-to-income requirements, you can qualify for a loan up to 100% of the home’s appraised value.

Interest Rates

Interest rates for Rural Development loans are set by the USDA. They are published on the USDA website and updated monthly.

As of March 2023, interest rates range from 3.75% to 6.25% depending on your income level. The lowest rates are reserved for very low-income borrowers.

Rural Development loan rates are extremely competitive with other mortgage options. You’ll be hard-pressed to find lower interest rates unless you have pristine credit and a large downpayment.

How To Apply

To apply for a Rural Development loan in Illinois, follow these steps:

Find a USDA-Approved Lender – Connect with a lender in your area that offers USDA loans. This is usually banks, credit unions, and mortgage companies.
Check Property Eligibility – Use the USDA Property Eligibility tool to verify the home or land is in an eligible rural location.
Complete Application – Work with your lender to complete the mortgage application detailing your income, assets, debts, and other info.
Get Pre-approved – The lender will submit your application to underwriting and provide a pre-approval letter if qualified.
Make an Offer – With pre-approval in hand, you can confidently make an offer and proceed with the home buying process.
Close on Your Rural Development Loan – Work with your lender to gather any additional documentation needed prior to closing.

The lender will guide you through every step of the application process. Be sure to ask any questions you have along the way.

Rural Development Loan Closing Costs

Closing costs with a Rural Development loan will be similar to other mortgage loan types. Typical fees include:

Origination fee of 1% of the loan amount
Appraisal fee ($400-600 typically)
Credit report fee ($50-75)
Title fees for insurance, search, etc. ($1000-2000)
Recording fees to file paperwork ($50-150)
Initial escrow payment for taxes and insurance

All closing fees can be rolled into your loan amount. You’ll just need to account for them when determining how much home you can afford.

Repayment Options

Rural Development loans offer great flexibility in how you repay the loan:

30 Year Fixed – The most popular option is a fixed rate loan amortized over 30 years. Your monthly principal and interest payment will remain the same over the life of the loan.
38 Year Fixed – For lower income borrowers, a 38 year term is available to reduce the monthly payments.
15 Year Fixed – 15 year fixed rate mortgages have higher monthly payments but save substantially on interest over the life of the loan.
Adjustable Rate – 1, 3, and 5 year adjustable rate mortgages are also available if you prefer a lower initial interest rate.

Work with your lender to choose the repayment term that best fits your financial situation.

Refinancing a Rural Development Loan

If you already have a Rural Development loan, you may be eligible to refinance into a new loan term to lower your interest rate or monthly payment.

Refinancing can only be done through the Rural Development Streamlined-Assist Refinance program. You cannot refinance into a conventional loan.

To qualify, you must have made timely mortgage payments for the past 12 months and have lived in the home for over 1 year. Your new loan amount cannot exceed the payoff of your current Rural Development loan.

Home Improvement Loans

If you need financing for home repairs or improvements, the Rural Development Single Family Housing Repair program offers loans and grants.

Home Improvement Loans – 1% interest loans up to $20,000 for low-income homeowners.
Home Repair Grants – Grants up to $7,500 for homeowners over 62 unable to repay a loan.

Funds can be used for improving or modernizing homes in rural areas. Contact your local Rural Development office to learn more and apply.

The Bottom Line

For homebuyers in rural Illinois, the USDA Rural Development loan program is an excellent financing option worth strong consideration. The benefits of 100% financing, low rates, and flexible credit outweigh the minor location constraints.

Work with a USDA approved lender to determine if you meet the eligibility requirements and get the process started. Owning a home in the community you love may be more affordable than you think with a Rural Development loan!

Additional USDA Rural Development Loan Eligibility Rules

Besides the guidelines that cover the home’s location, the borrower’s income, and debt ratios, there are other guidelines that potential borrowers need to be aware of.

Verifying Income

All borrowers who wish to use the rural development program to purchase a home must be able to prove their yearly income. Generally speaking, based on the way a person earns income, the following information will be needed

Source of Income	Required Documents
Hourly or commissioned Employee	Recent paystubs documenting income from the last 60 days W-2 forms from the past 2 years
Self-Employed or Business Owner	Past 2 years’ personal income returns Past 2 years’ business income returns
Retired or Disabled	Last 2 month’s benefit payments Past 2 years’ personal tax returns

Citizenship

Potential borrowers seeking to qualify for this program will need to fall into one of the following categories:

Full citizen of the USA
National non-citizen
Qualified alien

The lender will ask for your proof of citizenship before getting the loan approved. You may also be asked to provide the proof again at the time of closing.

Who is NOT a Good Fit for this loan?

Based on the various criteria listed above, only 2 types of people should avoid this loan.

The first group is the city lovers. Any individual or family that dreams of living downtown in a major city, with lovely views of the skyline, access to parks, and convenient trips to shopping and entertainment via public transportation should not consider this loan. The areas in and immediately around downtown areas do not typically qualify for the rural designation.

High earners should also not apply. Individuals who have either started a company that yields them a six-figure personal income, or are highly paid professionals, will typically have a yearly income that is much higher than USDA’s allowable guidelines.

Buying a House Using USDA Rural Development Loan ($1,000 DOWN)

FAQ

What is the income limit for a USDA loan in Illinois?

USDA Loan Income Limits and Eligibility in 2024 The current standard USDA loan income limit for 1-4 member households is $110,650, up from $103,500 in early 2023. The 2024 limit for 5-8 member households is $146,050, up from $136,600. USDA loan limits by county may be higher to account for cost of living.

Is rural development the same as FHA?

USDA home loans have stricter income limits than FHA loans and also require you to live in an eligible rural area. Your home address and annual household income determine your borrower eligibility for USDA loans. FHA borrower requirements, on the other hand, are more lenient as you can have a lower credit score.

Is a USDA loan the same as rural development?

USDA loans are guaranteed by the USDA Rural Development Guaranteed Housing Loan Program, a part of the U.S. Department of Agriculture. Most USDA loans are issued by partner lenders, though the department can grant them directly to qualified borrowers with incomes below a certain limit.

Can you buy down interest rate on USDA loan?

This answer is True. Discount Points may be used to permanently buydown the interest rate.

What is a rural development loan in Illinois?

The rural development program is often referred to as a rural mortgage. This comes from the primary defining characteristic of the loan; to be approved for the mortgage, the property must be designated as an eligible rural area in Illinois as defined by the USDA map. But wait, don’t let that scare you.

What is a rural home loan in Illinois?

Most counties across Illinois have many homes that will qualify for the rural definition. The main goal of this loan is to offer people a chance to buy a single-family home. The loan does not offer financing for large farming operations or a home that includes a large amount of acreage.

How does rural development work in Illinois?

Instead, the office approves various lenders to offer the Illinois rural development program to qualified borrowers. The rules for this mortgage state that a qualified borrower may receive a loan equal to 100% of the property’s appraised value, plus the upfront guarantee fee.

How do I get a home loan with rural development?

If you would like information about obtaining a home loan with Rural Development, contact your local service center. If you have an account with us and you would like to view your mortgage account information, you must first obtain a USDA level 1 Customer ID and Password, which you can do by registering below.

What is a rural development loan?

A Rural Development (RD) loan is ideal for buyers who’d like to build, improve, repair, or rehab homes in rural areas—with no down payment. Reach out to our expert team today to see how we can help!

How does the USDA Rural Development Program work?

The USDA, which stands for the United States Department of Agriculture, has guidelines for their loans and they work similarly to FHA and VA. The USDA Rural Development office does not lend money directly to borrowers. Instead, the office approves various lenders to offer the Illinois rural development program to qualified borrowers.