Everything You Need to Know About USDA Construction Loans in Oklahoma

The USDA offers several types of loans and grants to support home construction and financing for rural Americans. One such program is the Section 502 Direct Loan Program, which provides affordable financing to low- and very-low income applicants to help them achieve homeownership. In this comprehensive guide, we’ll cover everything you need to know about USDA construction loans in Oklahoma, including eligibility requirements, application process, loan terms, and more.

An Overview of USDA Construction Loans in Oklahoma

The Section 502 Direct Loan Program enables low-income individuals and families to achieve homeownership by providing 100% financing for the construction, purchase, or renovation of a home in eligible rural areas. Funds can be used to build a new home on a rural property or to make repairs to an existing rural home

To qualify for a USDA construction loan in Oklahoma, the property must be located in an eligible rural area with a population under 35000. The applicant’s income must not exceed 115% of the median income in that area. The program is administered through local offices of USDA Rural Development.

USDA construction loans feature

• 100% financing at fixed interest rates
• No down payment required
• 33 year loan term
• No pre-payment penalties
• Lower credit score requirements

By covering 100% of construction costs, USDA loans make it possible for low-income families to build a home they may not otherwise be able to afford. The program has helped many rural Oklahomans achieve their dream of homeownership.

Benefits of USDA Construction Loans in Oklahoma

There are many advantages to financing new home construction or repairs with a USDA loan rather than a conventional mortgage or other type of loan.

100% financing

USDA construction loans provide 100% financing, meaning you do not have to come up with a down payment. This removes a major barrier to homeownership for many low-income buyers.

Below market interest rates

USDA home loans feature fixed interest rates that are lower than rates for conventional mortgages. This makes monthly payments more affordable.

No mortgage insurance

Conventional loans usually require private mortgage insurance if you put down less than 20%. USDA loans do not have this added expense.

Flexible credit requirements

USDA has more flexible credit standards than conventional lenders, making it possible for buyers with poor credit to still qualify.

33 year loan term

The 33 year repayment term results in lower monthly payments compared to a traditional 30 year mortgage.

No prepayment penalties

You can pay off a USDA loan early with no prepayment penalties.

Eligibility Requirements for USDA Construction Loans in Oklahoma

To qualify for a USDA home loan in Oklahoma, applicants must meet certain eligibility criteria:

• Income Limits – Your household income must be below the limit for your area, which varies but is capped at 115% of the median income. See income limits for Oklahoma counties.

• Credit History – You must have a credit history that demonstrates ability and willingness to repay debt. Minimum score varies by lender but is often around 640.

• Repayment Ability – Your monthly payment must be no more than 29% of household income.

• Citizenship – At least one household member must be a U.S. citizen or legal resident alien.

• Property Eligibility – The home must be located in a rural area with a population under 35,000. Check eligible addresses in Oklahoma here.

• Homebuyer Education – Applicants must complete an approved homebuyer education course.

• First-Time Homebuyer Requirement – You cannot own another home. Some exceptions apply.

Meeting these criteria qualifies you to apply, but does not guarantee loan approval. The lender will verify eligibility once you have applied.

The USDA Construction Loan Process in Oklahoma

If you want to build a new home or make repairs using USDA financing, follow this general process:

1. Determine if you meet basic eligibility requirements – Use the criteria above to evaluate if you are likely to qualify based on income, credit score, property location, etc.

2. Choose a USDA approved lender – These lenders originate USDA loans in Oklahoma. We recommend getting quotes from multiple lenders.

3. Complete a homebuyer education course – This is required to apply for the loan. Many non-profit agencies offer approved courses.

4. Find a property and new home plan – If building new construction, decide on house plans and find a suitable rural property to build on.

5. Apply for pre-approval – The lender will evaluate your eligibility and creditworthiness. This pre-approval letter will show the max loan amount.

6. Make an offer / sign construction contract – Your pre-approval letter allows you to make an offer on land or sign a construction contract with a home builder.

7. Complete loan application and approval – Work with your lender to complete the full application. Get appraisal, verify income, etc. Receive final loan approval.

8. Construction period – Builder constructs home while lender monitors progress. Loan funds are disbursed in stages based on completion.

9. Closing and move in – Once construction is finished, close on the mortgage, then move into your new home!

It typically takes at least 6 months from application to move-in when building a new USDA-financed home. Working with an experienced real estate agent and loan officer makes the process smoother.

What’s Covered by USDA Construction Loans in Oklahoma?

USDA direct home loans provide 100% financing for all eligible costs related to constructing or repairing a home. Covered uses include:

• Land acquisition – Up to 10 acres
• Construction materials and labor
• Well and septic system – If needed
• Site preparation – Grading, excavation, etc.
• Driveway, parking, landscaping
• Homeowner education – Required training courses
• Closing costs – Loan origination, appraisal, etc.
• Repairs to an existing home – Roof, siding, flooring, etc.

Soft costs like architectural plans, permitting fees, surveys, and inspections are also covered. The total loan amount is based on the as-completed appraised value of the home.

What Are the Loan Terms and Interest Rates?

All USDA home loans have the following terms and conditions:

• Up to 100% of appraised value
• 33 year loan term
• Fixed interest rate for life of loan
• No prepayment penalties
• No balloon payments

The interest rate will vary based on your income level:

• Very low income – Below 50% of area median income = 1% rate
• Low income – 50-80% of area median income = 1.25% rate
• Moderate income – Up to 115% of area median income = 1.5% rate

Rates are set when your loan closes and will not change. The long repayment period and below market interest rates result in very affordable monthly mortgage payments.

Applicants must pay a $25 application fee. There are no other upfront costs, origination fees, or closing costs for USDA home loans.

How to Apply for a USDA Construction Loan in Oklahoma

To get started, follow these steps:

1. Contact USDA Rural Development – Call your local office or find contact info online. They can provide an eligibility assessment and guide you through the process.

2. Find a USDA approved lender – This lender will pre-qualify you and handle your application/approval. Search for lenders here.

3. Check property eligibility – Use the USDA address lookup tool to verify the land or home is in an eligible rural area.

4. Complete application forms – Your lender will provide the forms needed, including financial history, employment verification, etc.

5. Get appraisal and inspections – Required to determine the as-completed value of the new home.

6. Build your home – Once approved, start construction! The lender will schedule draw disbursements upon inspection of progress.

7. Close on mortgage – After construction is done, close on your USDA direct