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 homeowner or community organization in Minnesota looking to take on construction projects, it can be challenging to secure affordable financing. This is where USDA loans can make a major difference. In this article, we’ll provide an in-depth look at how to maximize USDA funding for construction projects of all sizes across Minnesota.
Overview of USDA Construction Loan Programs in Minnesota
The USDA Rural Development office in Minnesota offers a variety of loan and grant programs to support construction and improvement projects in rural areas across the state Some of the most relevant programs include
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Single Family Housing Direct Loans (Section 502) – Direct loans to low-income individuals and families for buying, building improving, or repairing a home in eligible rural areas.
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Single Family Housing Repair Loans & Grants – Loans and grants to repair improve modernize or remove health and safety hazards from homes in eligible rural areas.
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Rural Housing Site Loans (Sections 523/524) – Loans to purchase and develop housing sites for low- and moderate-income families. Section 523 is for self-help housing and Section 524 is for all rural housing.
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Community Facilities Direct Loan & Grant Program – Loans and grants to construct, expand or improve essential public services and facilities in communities under 20,000 population.
So whether you need to repair your rural home, want to build new affordable housing, or have a larger community construction project in mind, the USDA likely has a program to meet your needs.
Determining Your Eligibility for USDA Construction Programs in MN
Before applying for any USDA construction loans or grants, it’s important to determine if you meet the eligibility requirements.
Key requirements include:
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Project site must be in an eligible rural area of Minnesota as defined by the USDA Rural Development office. You can check address eligibility online.
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For housing programs, applicants must meet low- or moderate-income requirements based on the area median income. Income limits can be found on the USDA Income and Property Eligibility site.
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Non-profit organizations must have appropriate legal status and capacity to manage construction projects and loans.
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For community facilities, the project must benefit a rural area with under 20,000 population.
If you meet the eligibility criteria, you’ll stand a good chance of securing USDA funding for your construction project in Minnesota.
Applying for USDA Construction Loans and Grants in Minnesota
The application process will vary slightly depending on which USDA loan or grant program you are utilizing. Here are some key steps:
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Contact your local USDA Rural Development office – They can provide guidance on the best program for your project and details on the application process. There are over 10 USDA Area Offices across Minnesota that can assist.
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Submit your application – For housing loans, you’ll complete a Uniform Residential Loan Application and for community facilities, a pre-application with details on your proposed project. Multiple documents and certifications will be required.
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Work with USDA staff – The local USDA office will help analyze your application, request any additional documents, and determine if you meet all program requirements.
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Receive a funding decision – If approved, you’ll receive a letter detailing the loan or grant amount and terms. Then you can proceed with your construction project using the USDA funds.
While the process takes some time and effort, it’s worthwhile for affordable financing. USDA staff are available to help you through each step.
Tips for Success with USDA Construction Loans in Minnesota
If you’re hoping to maximize your chances of securing USDA construction loan funding in Minnesota, keep these tips in mind:
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Have a detailed project plan and cost estimate – This shows the USDA you’ve done your homework and thought through how funds will be used. Include contractor quotes.
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Highlight community benefits – For facilities projects, emphasize how the new construction will support rural areas through expanded educational, health, emergency, or other services.
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Secure matching funds – Projects that leverage other funding sources like bank loans or grants often have the edge over USDA-only funded projects.
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Meet all eligibility and application requirements – Dot your I’s and cross your T’s to avoid any roadblocks in the review process.
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Build relationships with USDA staff – Getting to know your local USDA team can help make the process smoother and your project stand out.
With strategic planning and persistence, your construction project in rural Minnesota can become a reality with the assistance of an affordable USDA loan. Connect with your local USDA office today to get the ball rolling on an application.
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.
USDA Construction Loan Requirements 2024 Full Guide!
FAQ
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