The United States Department of Agriculture agency provides an excellent way to purchase a home known as the Rural Housing Loan or USDA loan for short. For Minnesota residents in the right income bracket, this mortgage program is a way to buy a home without making a down payment.
As a Minnesota resident, I know firsthand how important rural development funding can be for our small towns and agricultural communities. My family’s farm outside Brainerd has benefited from several USDA rural development loans over the years. These programs provide critical financing that simply isn’t available from traditional lenders.
In this comprehensive guide, I’ll explain all the Rural Development loan options in Minnesota, who qualifies, how to apply, loan terms, and more. Whether you need funding for a home, business, utility project or community facility, Rural Development should be on your radar
An Overview of USDA Rural Development in Minnesota
The USDA Rural Development office in Minnesota offers several loan and grant programs to promote rural economic development in our state.
Here are a few key things to know
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Headquarters in St. Paul – The main MN Rural Development office is located at 375 Jackson Street Suite 410, St Paul MN 55101.
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Field offices – There are also area RD offices in locations like Marshall, Willmar, Mankato and Rochester.
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Variety of programs – RD offers financing options for single family homes, multifamily housing, businesses, cooperatives, utilities, renewable energy, community facilities and more.
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Loans and grants – Most programs offer low-interest direct loans, guaranteed loans, and grants or grant/loan combinations.
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Serves rural areas – To qualify, projects must be located in rural communities, towns or Census-designated rural zones.
Rural Development programs fill a critical gap by providing financing to projects that struggle to get traditional funding. The expanded eligibility and specialized underwriting make approval more accessible.
Frequency of entities:
USDA Rural Development: 2
Rural Development: 5
RD: 3
rural development loans: 1
loan and grant programs: 1
low-interest direct loans: 1
guaranteed loans: 1
grants or grant/loan combinations: 1
Rural Development Loan Programs in Minnesota
There are a wide variety of loan and grant programs available through Rural Development in Minnesota. Here are some of the main options:
Single Family Housing Loans
Several programs help low to moderate income rural residents obtain home financing:
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Direct home loans – These function similar to a traditional mortgage with low fixed rates and up to a 100% loan-to-value ratio. No down payment is required.
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Guaranteed home loans – RD guarantees loans from private lenders to reduce lender risk. More flexible income and credit requirements.
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Home repair loans and grants – Direct loans and grants to improve or modernize homes. Grants prioritized for elderly and very low income applicants.
Multifamily Housing Loans
Financing is available for affordable rental housing complexes:
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Direct rental housing loans – Low fixed-rate financing for new construction or substantial rehabilitation of rental housing.
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Guaranteed rental loans – RD guarantees loan from private lender to develop rural multifamily housing.
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Farmworker housing loans – Affordable financing to build housing for domestic farm laborers.
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Housing preservation grants – Grant funding to repair and rehabilitate existing rural rental housing.
Business & Cooperative Loans
Several programs help support rural businesses and cooperatives:
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Business & Industry loan guarantees – RD guarantees loans from private lenders for rural businesses. Can be used for working capital, equipment, and real estate.
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Value-added producer grants – Funding to help agricultural producers expand into value-added activities like processing and marketing.
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Rural Energy for America loans and grants – Direct loans, guaranteed loans and grants for renewable energy systems and energy efficiency improvements.
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Rural microentrepreneur assistance program – Loans and grants to help microenterprises get access to capital and technical assistance.
Community Facilities Loans
Low-interest financing is available to develop essential community infrastructure:
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Community facilities direct loans and grants – Funding for facilities like health clinics, hospitals, schools, fire stations, community centers, and more.
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Water & waste disposal loans and grants – Direct loans, guaranteed loans, and grant/loan combinations to improve access to clean drinking water and waste disposal.
Electric and Telecom Loans
Rural electric cooperatives and local telephone providers can access low-cost financing through RD programs.
Who Qualifies for Rural Development Loans in Minnesota?
To qualify for Rural Development loans in Minnesota, applicants must meet a few key criteria:
- Located in an eligible rural area
- Project serves a rural community need
- U.S. citizen or legal resident
- Have repayment ability for loan
- Unable to get affordable financing elsewhere
Income and credit requirements vary by program but are more flexible than conventional loans. The direct home and business loans have income thresholds applicants must fall under.
Non-profit organizations, tribes, communities, cooperatives, and public bodies all qualify for various RD loans and grants.
Frequency of entities:
Rural Development loans: 3
rural area: 2
income and credit requirements: 1
How the Rural Development Loan Process Works
The process to get Rural Development financing in Minnesota generally includes these key steps:
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Determine eligibility – Confirm you and your project qualify before applying.
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Select loan program – Choose the specific RD program that matches your need.
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Submit application – Complete either a paper or online application with required documents.
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Underwriting review – Loan officers review your application and analyze eligibility. Additional documents may be requested.
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Approval decision – You will receive a decision on your application, either an approval, denial or request for an appeal.
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Loan closing – If approved, you’ll close on your loan and begin required reporting and servicing.
It’s a good idea to speak with your local Rural Development office early in the process to confirm your eligibility and get guidance on the application. The full process usually takes 2-3 months from completed application to closing.
Frequency of entities:
Rural Development loan process: 1
loan application: 2
loan approval: 2
loan closing: 1
What Are the Loan Terms for Rural Development Loans?
Rural Development loans come with more favorable terms than conventional financing. Here are some of the loan terms you can expect:
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Low fixed interest rates – Most RD loans have fixed rates below market averages, between 1.5% to 4%.
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Long repayment terms – Loan terms allow 20-40 years for repayment depending on program.
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Low or no downpayment required – Little to no downpayment is required, enhancing affordability.
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No prepayment penalties – You can pay off an RD loan early with no penalty.
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No balloon payments – Loans are fully amortized with no balloon payment at maturity.
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No equity required – 100% financing is available for single family and business direct loans.
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One-time fees – Just a small origination fee around 1-2% is charged. No recurring fees.
The favorable rates and terms help provide affordable financing to projects in rural areas. Carefully review the loan terms to pick the RD program that best fits your needs.
Frequency of entities:
Rural Development loans: 1
low fixed interest rates: 1
long repayment terms: 1
low or no downpayment required: 1
no prepayment penalties: 1
no balloon payments: 1
100% financing: 1
origination fee: 1
Tips for Applying for Rural Development Loans
If you think an RD loan may work for your project, here are some tips to successfully navigate the application process:
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Confirm eligibility upfront – Verify you and your project meet the location, income, and other eligibility criteria before applying.
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Pick the right program – With many options, research carefully to identify the optimal loan program for you.
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Talk to your local office – Consult with RD staff early for guidance on qualifying and applying.
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Gather documents – Have all required income, financial, and property documents ready to submit. Any missing items will delay underwriting.
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Mind deadlines – For some funding programs like Value-Added Producer Grants, watch for strict application deadlines.
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Follow up on your application – Check in with the loan officer if you don’t receive a timely decision. Pending applications can fall through the cracks.
Doing your homework upfront and closely following the process will give you the best shot at securing Rural Development financing. Don’t hesitate to use the local expertise available through your Rural Development office.
Frequency of entities:
Rural Development loans: 2
eligibility criteria: 1
loan application: 2
application documents: 1
Alternatives to Rural Development Loans
While Rural Development loans offer many perks, they aren’t the only financing option. Here are a few alternatives to consider:
FHA loans – FHA-backed mortgages only require 3.5% down and are more widely available.
VA loans – For qualifying veterans and service members,
Who Should NOT Get a USDA Rural Development Mortgage?
There are only 2 reasons why a person should not consider using the USDA mortgage for their next property purchase.
The first reason is the desire to live deep in the heart of the city. While it is true that nearly every county in the state has some areas designated as rural, the downtown location of most cities do not qualify for a USDA mortgage. People who dream of living in a condo that overlooks the city or a home at the apex of town should not consider using the USDA program for their home purchase.
The second reason is the high income. Many people across this great country have found a way to excel in their careers and earn an annual income that is much higher than the average person. This type of income is too much for the USDA program.
Basics of the USDA Mortgage
USDA Property Location Requirement
In the real estate industry, the USDA loan is commonly called a rural home loan. This comes from the single most important requirement for the mortgage; the prospective property must be in a rural area as designated by the Department of Agriculture.
Thanks to the internet, it is possible to look up these designated rural areas rather quickly. The USDA property eligibility map site allows consumers to look up a rural area by state, or, by property address. If assistance is needed for this, feel free to contact us anytime.
Generally speaking, most areas across the state fall in the designated rural locations.
USDA No Down Payment Requirement
The USDA guidelines will allow borrowers to receive a loan of up to 100% of the home’s appraised value. Compared to other loans that ask for a down payment ranging from 3% to 20% of the home’s asking price, this one factor alone can save borrowers a ton of money. It may also mean that borrowers can buy a home now since there is no need to take time to save up for the large down payment.
Type of Homes Eligible For USDA Loans
The USDA loan is not intended for the purchase of large farms or properties with a significant amount of acreage.
Instead, USDA will finance a single-family home. The home purchase may include up to 5 acres of adjoining land.
Townhomes, as well as condos, may be eligible, if they are in a rural area and approved or accepted by HUD/FHA, VA, Fannie Mae, or Freddie Mac.
USDA Occupancy Rules
A person applying for a USDA home loan must intend to live in the home as their main residence. The USDA program will not approve financing if the property is an investment home, a second home, or rental property.
USDA Income Guidelines
The USDA mortgage is designed for people with moderate to low income. For this reason, there are strict rules about the borrower’s income that must be applied.
The rule states that the borrower’s household income may not exceed 115% of their area’s median income. For example, if the median income is $60,000 for your area, you would be allowed to make up to $69,000 per year and still apply for the loan.
There are 2 things to keep in mind about the income limits. First, the income limit is based on the number of people living in the home. Therefore, a family of 5 will have a larger income limit compared to a married couple with no children.
Secondly, the income from all working people in the home is counted. For example, if the mom and dad both have full-time jobs, and their 17-year-old daughter has a part-time job, the daughter’s income will also be included in the calculations.
USDA Maximum Loan Size
The USDA rules do not have a specified maximum loan amount. Instead, the lender calculates the maximum amount the borrower can receive based on the size of their household, their total yearly income, and their debt. As long as the borrower meets the income guidelines for their area and meets the debt to income guidelines, they can be approved for the mortgage.
USDA Debt-to-Income Rules
USDA has 2 calculations involving the borrower’s debt and income. The first calculation is called the primary ratio and the second calculation is called the overall ratio.
Keep in mind that higher credit scoring borrowers may be able to exceed these ratios.
For the primary ratio, no more than 29% of the borrower’s monthly gross income can be used for the proposed mortgage payment, including property taxes and property insurance.
For the overall ratio, no more than 41% of the borrower’s monthly gross income may be used for both the mortgage payment and all other debt.
For example, using the previous example of a yearly income of $69,000 means the borrower has a monthly gross income of $5,750 ($69,000 divided by 12 months).
For this example, the home payment plus taxes & insurance cannot be higher than $1,667.50 and the mortgage payment plus all existing debt cannot be higher than $2,357.50.
If you need help with these calculations, your mortgage lender can review your income and credit report and show you the two ratio calculations.
Buying a House Using USDA Rural Development Loan ($1,000 DOWN)
FAQ
What is the income limit for a rural development loan in Minnesota?
Is a rural development loan the same as a FHA loan?
Is a USDA loan the same as rural development?
What is the rural housing loan in India?