Finding an affordable home can be challenging, especially in rural areas where access to credit and housing options may be limited. That’s where USDA rural home loans can help. These government-backed loans from the USDA Rural Development office make homeownership attainable for low- and moderate-income buyers in eligible rural locations.
What Are USDA Home Loans?
USDA home loans, also known as Section 502 direct loans, are provided directly by the United States Department of Agriculture (USDA) Rural Development office. These loans help eligible homebuyers purchase modest homes in rural areas.
Some key features of USDA home loans include:
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Low interest rates – USDA home loans offer below market interest rates to keep payments affordable. Rates are fixed for the life of the loan.
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Low or no down payment – 100% financing means buyers can get into a home without coming up with a large down payment
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Flexible credit guidelines – Credit scores as low as 640 may qualify. Past credit issues don’t automatically disqualify applicants.
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No mortgage insurance – Unlike conventional loans, USDA home loans don’t require private mortgage insurance. This saves borrowers hundreds per month.
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Payment subsidies – Subsidies or grants can reduce the mortgage payment for qualified applicants.
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33-38 year terms – Extended loan terms keep payments low.
USDA home loans remove many common barriers to homeownership. Borrowers gain an affordable, fixed-rate mortgage, often with a minimal down payment.
USDA Loan Requirements in Illinois
To qualify for a USDA home loan in Illinois, borrowers must meet certain eligibility standards. Here are some of the basic requirements:
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Location – The home must be located in a USDA-designated rural area of Illinois. The USDA has an eligibility site to check specific addresses. Generally, rural towns and communities with populations under 25,000 qualify.
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Income limits – Income must be below USDA limits for the county where you want to buy. For example, the limit for a 4-person household in Cook County is currently $121,300. Limits are typically below median income.
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Good credit – While minimum scores are 640, most lenders require a 660 FICO or higher. Past bankruptcies, foreclosures, and collections may be allowed with proper documentation.
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Stable income – Documented income from employment, investments, pensions, etc. must reasonably support the requested mortgage payment. Self-employed borrowers may qualify.
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Homebuyer education – First-time buyers must complete an approved homebuyer education course. This simple online class teaches the home buying process.
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First-time homebuyer – Applicants must be first-time homebuyers, with some exceptions like veterans, divorce, disability, etc. Those who have owned a home may still qualify under certain circumstances.
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Home condition – Existing homes must be decent, safe, sanitary, and modest in size and cost. New construction homes must meet USDA specifications.
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Principal residence – Borrowers must make the home their primary residence and cannot own additional residential property.
As long as applicants can satisfy these stipulations, they may be eligible for low monthly payments, affordable interest rates, and flexible credit standards through a USDA Illinois home loan.
How Much Can You Borrow in Illinois?
USDA does not impose a maximum mortgage amount. However, there are limits on the size and cost of the property.
In Illinois, the maximum area loan limit is currently $375,400. So while there are no caps on the actual loan amount, the sales price of the home cannot exceed this figure. Home value limit varies by county and may range from $250,000 to $375,400.
The home also must be modest, meaning it is not overly large or luxurious compared to others in the area. Number of bedrooms is limited based on household size.
Beyond these restrictions, loan amount depends on:
- House price
- Down payment size
- Repayment ability
- Credit profile
- Debt-to-income ratio
Those eligible for USDA home loan payment subsidies can receive an additional 25% to 33% of monthly income toward their mortgage payment. This increases the loan amount borrowers can obtain.
How to Apply for USDA Loans in Illinois
The USDA does not directly accept mortgage applications. Rather, these government-backed loans are provided through approved lenders.
Follow these steps to get started on a USDA home loan in Illinois:
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Check eligibility – Use the USDA Property Eligibility and Income Eligibility sites to confirm you qualify based on location and income limits.
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Get pre-qualified – Work with a USDA-approved lender to submit your financial details and get pre-qualified for an amount.
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Select a property – Choose a home within the area loan limits that will serve as your primary residence.
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Make an offer – Make an offer and sign a purchase agreement contingent on loan approval.
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Complete loan application – Work with your lender to complete the full mortgage application and provide required documentation.
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Home inspection – Inspection ordered by the lender will check for compliance with USDA quality standards.
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Closing – Lender will prepare closing documents and disburse loan funds directly to the title company/seller.
While the lender handles loan processing and approval, you’ll need to supply documents verifying income, assets, and eligibility. Closings can occur within 45 days or less in many cases.
5 Benefits of USDA Home Loans in Illinois
From low rates to flexible credit, USDA home loans offer Illinois homebuyers plenty of advantages. Here are five of the top benefits.
1. Lower Mortgage Rates
Today’s average 30-year fixed mortgage rate is around 7%. USDA home loans routinely offer rates at least 2% lower, currently around 4.75%. This savings reduces your principal and interest payments by hundreds per month.
2. Smaller Down Payments
Most conventional mortgages require at least 3-5% down. USDA loans let buyers put down as little as 0%. You may be able to get into a home with minimal cash out of pocket.
3. More Relaxed Credit Guidelines
USDA understands rural residents face unique credit challenges. These loans are available to borrowers with credit scores as low as 640. Past issues like bankruptcy and collections may not disqualify you.
4. No Mortgage Insurance
Private mortgage insurance (PMI) on conventional loans can cost $75-$150 monthly. USDA loans have no PMI requirement, so you avoid this added expense.
5. Payment Subsidies
Applicants with very low incomes may receive subsidies equal to 25%-33% of their monthly income to make the mortgage more affordable. This grant effectively reduces your payment.
From reduced rates to easier credit requirements, USDA home loans provide a low-cost path to homeownership for eligible Illinois borrowers.
Check Your Eligibility for USDA Loans in Illinois
If buying a modestly priced home in rural Illinois sounds appealing, see if you qualify for a USDA home loan. Use the USDA’s online eligibility tools:
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Property Eligibility Site – Check if the home or land is in a USDA-eligible area
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Income Eligibility Site – Confirm your household income is within limits
You can also use the USDA’s Direct Loan Program Self-Assessment Tool for a preliminary review of your eligibility.
In addition to low rates and flexible credit, USDA rural housing loans offer a sense of community. They help you buy in the small-town setting you know and love. If your finances need a boost to become a homeowner, explore how USDA mortgage options can make your dreams a reality.
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.
Highlights Of The Illinois USDA Rural Development Mortgage
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.
True Zero-Down Option
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. When comparing this to a loan that requires a down payment ranging from 3% to 10% of the home’s price, this mortgage option can save borrowers thousands of dollars.
This one factor may also allow potential borrowers to buy a home sooner than they expected since they will not need to spend months or years saving funds for the down payment.
Location of the Property
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. In layman’s terms, rural means outside of a major metro downtown area. Most counties across Illinois have many homes that will qualify for the rural definition.
Property Types
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. The maximum amount of acreage available to be financed with a home purchase is 5 acres.
Along with single-family housing, a condo that is located in a designated rural area is also allowed. Townhomes can also be purchased with the Illinois Rural Development Program.
Required Occupancy
To be eligible for this program, the borrower(s) must plan to live in the property as their primary home.
The rural development program is not available for vacation homes or rental properties.
Buying a House Using USDA Rural Development Loan ($1,000 DOWN)
FAQ
What is the income limit for USDA loans in Illinois?
What are the pros and cons of a USDA loan?
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Pros
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Cons
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No down payment
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Income limits
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Competitive interest rates
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Property restrictions
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Relaxed credit requirements
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Occupancy requirements
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No PMI requirement
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USDA program fees
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Can you have a USDA and FHA loan at the same time?
What is the USDA rural development loan?
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 USDA Rural Development?
As a part of USDA Rural Development, our mission is to be a cost-effective service provider that strives to help homeowners and their families remain successful homeowners throughout the term of the loan. Our home loans are serviced by the Customer Service Center (CSC), located in St. Louis, Missouri.
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 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.