USDA's Direct (502) Rural Development Loan

I’m just going to cover my experience through The United States Department of Agriculture Rural Development Direct Loan program itself and will not include my emotions through the whole first time homebuyer’s experience. Not only was it a headache, but there was some mishaps I just don’t feel like reliving (all smiles though). The program itself really tested my patience but was more than worth it in the end, and I would recommend it to any first time home buyer that meet the qualifications. Speaking of qualifications, there are only a few: meet income eligibility, decent credit score, proof of income, U.S. citizen or legal alien status with the government, home must be in rural community, and good referrals.

The USDA has two programs which provide aid to those seeking to purchase a home. Direct Loans: Loans offered to homebuyers directly from the Government; Guarantee Loans: USDA backing loans made through customary banking and lending institutions. I applied and received the Direct Loan which I will cover my trials and achievements in this article. If you would like to learn more about the Guarantee Loans you can visit their website: http://www.rd.usda.gov/programs-services/single-family-housing-guaranteed-loan-program. So, being a 28 year old divorced single mom still longing for the two-story home, garage, and white picket fence – I started the USDA Direct Loan journey.

I called my local service center (which was an hour away) and requested to be sent an application. The application itself was annoying, but painless: fill out paper work, provide copies of birth certificates/social security cards/and if applicable driver’s license or other form of photo identification of everyone that will be residing in the home, proof of income, first time homebuyer’s certificate if applicable and letters of good standing (i.e. landlord, parents if you’re living with them, etc.). Mailed in my application (and faxed since I was so nervous), and twiddled my thumbs for 30 . . . 60 . . . 90 days. The 90 day timeframe was caused by my “local” service center handling multiple counties, lack of workers, and my filing at the height of the foreclosure crisis.

Finally, a letter in the mail with an interview date only two weeks away. When the day finally came, I dressed up in my Sunday best, plugged the address in my GPS, filled the Tahoe with overpriced gas and was merrily on my way. I finally made it into town, just for my GPS to get lost “make a legal U-turn, turn right, turn left, destination on right, destination on left” apparently the GPS was just as confused as I was. Made the call to the service center to get the correct directions, and was sitting in front of the caseworker’s desk in no time. The caseworker explained the program to me – just reinterring the details that I (and I’m sure that you) know by heart from all my online research. Everything was going nicely until she told me my credit score – 565. What?!?!!? I went through the home buyer’s program in my county and after clearing ALL my debt I was assured that my score would at least be 600. How devastating – to find out that your credit score is a 565 when you know for a fact that the program requires you to have at least a 650. Tears started to form in the corner of my eyes as she began going over the details of my credit report. I started to see the image of my son’s smiling face running through our backyard begin to fade . . . and then she gave me my approved loan amount. Wait – What?!?! Approval letter – yes, due to my having cleared ALL my debt and not owing anyone anything I was still approved.

I wanted to scream and break into a thank you prayer in the middle of her office – but I didn’t want to freak her out – so I just held my composure. She explained that I was approved for the highest possible loan amount for my county (which I thought there were no limits – but whatever – I was approved), my first payment will be due in July the following year (about 9 months away), the breakdown of my mortgage payments (which was cheaper than my rent), and that I was locked into a fixed low interest rate (the lowest at that time) – but their funds are depleted. What?!!? Apparently, I was approved after the fiscal year ended and they are awaiting approval from the government for funds. Timeframe given – maybe next month or next year. Wow – really didn’t see that coming. I thanked her kindly for all her assistance, got back in the Tahoe, screamed and cried (I know, I know), and then called back all my missed calls and text messages (what did they say?? How much do you have??? When can we move in??). Needless to say it was the most joyous disappointing moment of my life (I still laugh at the thought).

So, in the meantime while I wait for the funding, I get a really great realtor; find that two story home (with two door garage – no white picket fence but that can come later) in a great neighborhood only five minutes from the city, and plenty of room for my son and his friends to play. My approval letter gave me a 30day window to get certain documents (all handled by my much beloved realtor) into the office regarding my pending home – although the funds were not available. Now let me speak of the monetary part she didn’t clue me in on. During the interview she did mention that I will have to pay for a home inspection but there will be no other funds coming out of my pocket. Great – so why do I have to pay for a home inspection, wood destroying organism inspection, appraisal, and earnest deposit? Not that I mind, through my first time home buyer’s program I was advised to save for these types of things – but don’t look me in my face and swear up and down the only thing I would have to pay for is the home inspection. And by the way, all this has come out my pocket and still no word regarding when the funds will be coming and we’re almost at the New Year. Like I said, the USDA was really testing my patience.

A few days after I bring in the New Year with my little one, I get an email headed USDA FUNDS from my caseworker. The funding was approved and the closing was in process. A week later I’m in the title agency conference room (no representative from the USDA there), eating chocolate chip cookies and signing document on top of document. At the end I’m given my keys, garage opener and . . . . a check?? Yes, apparently my earnest deposit was rolled into my loan and therefore refundable by the USDA. And if the sellers weren't going to pay the closing costs (which they did) that would have been rolled into the loan as well, meaning I wouldn't have to go in my pocket to cover closing costs. Only down side is that my mortgage was due next month – not in July as my approval letter said. Money and a new home – on the same day?? I can get over the new due date.

I would have to say there were a lot of behind the scenes work that went on directly between my realtor and caseworker – so I strongly urge anyone buying a home for the first time to team up with a realtor. I cannot give my realtor enough praise – she walked me every step of the way and still keeps in touch (even upgraded my home warranty package out her commission). Is this program time consuming – yes. Will you feel like your application was lost in the shuffle – yes. Will you have to come out of your pocket – yes. Is it worth it – yes! It’s a great feeling to play slide down the stairs in MY home with my 5 year old. Keep patience and your home goal in mind – and you’ll be sliding down your stairs too!!

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Comments 20 comments

Sara 5 years ago

Quick Q...how much did you pay out of pocket?


nestle02 profile image

nestle02 5 years ago from Florida, USA Author

about $1600 for the earnest deposit, appraisal, home inspection and two WDOs. But upside I got the earnest deposit back.


Sara 5 years ago

OK..not as bad as I feared...one more Q..what state? They told me I might have to pay a year of insurance up front....so nerve-wracking! I am going through this right now..would you believe this is the only accont of personal experience I could find?? This has been a good piece of mind..so Thank You!!!


nestle02 profile image

nestle02 5 years ago from Florida, USA Author

I'm in Florida - and from all the counties my local center had to handle, I'm surprised how fast everything went. I did have to pay a year of home insurance upfront, but i was told that during my first time homebuyers class so I was kinda already prepared for that. But I hope everything goes fast and smooth for you!! And please let us know how your experience went so more homebuyers can know exactly what they're getting into =).


Martha Patterson 5 years ago

I have been approved in Mississippi to get a house built on an acre of land. The house and land was rolled into one loan. The process was very quick but the funds are low. Basically everyone is racing to the punch. I am getting a house built and my contractor is now at the point of getting the survey, soil test, and appraisal done. Does anyone know at what point are the funds reserved?


nestle02 profile image

nestle02 5 years ago from Florida, USA Author

my sister went through the program to build a house as well. i'm not sure if the process is different across state lines, but with Florida her money was reserved as soon as she closed on everything. During different phases of the building process her case worker would inspect the house (and if approved) then a portion of the loan was given to the contractor - until everything was completed. But I would I contact your caseworker for clarification.


Martha Patterson 5 years ago

I am so happy to say I close on my loan on Aug 11th! My loan (thank God) took exactly 90 days from initial application until closing. That was pretty fast for a usda loan! I am so excited!!! Thank you Nestle02 for the encouragement!!!!


nestle02 profile image

nestle02 5 years ago from Florida, USA Author

*clapping hands* Joy!! I'm so happy for you!!! Please write an article to help encourage others as well!! =)


Ann 5 years ago

Thank you so much nestle02 for writing this. It was encouraging. My husband and I just receiver our Certificate of approval letter today!! And we are sooo excited! But also worried. The home we want has an in ground pool. And i know with the 502 loan that is not permitted. We are hoping that we can have the pool filled in or something so we can get this home. we are willing to pay for it to be filled in out of pocket if necessary. I'm just afraid that no matter what we are willing to do that the USDA will still not approve us on this home...Any ideas? Also We thought that the interest rate for the 502 loan was 1% and are Certificate said 3.5%... I will not sleep a wink tonight! So happy!! Thanks for any ideas about the pool. I am going to find out soon enough i know but just cant help worring and wondering about it.


Melissa 4 years ago

Question for you,

What was the loan limit?

I am in an area that is sort of frightening price wise. We need a 4 BR and they are all in the 200,000 range. I was worried it may be too much. We have gotten the pre approval or whatever they call it. Was sent an application and told to 1. fill out in pencil which I thought was odd although did say to sign in pen. 2. call as soon as we got it finished to set up an appointment rather than mailing it in. There is of course, a place I am in love with. Isn't that the way of it? And I am worried it will not be approved. So any insight would be greatly appreciated. Congrats on your new home!


Allecia profile image

Allecia 4 years ago from South Central Pennsylvania

I know this is a little after the fact but thank you so much for this article!! I am currently working with the exact same program in PA and I feel like every day brings a new reason to cry. I did a Google search to see if anyone had written about their experiences with the direct loan because I was starting to doubt if it is indeed worth it or not!


Kelly 4 years ago

I am trying to go through this process in Montana and just called the office because I sent in the prequalification paperwork a week ago, the lady I spoke to just looked at my income and said I doubt you will qualify... WHAT? I make just a smidge over the wage limit but also have deductions for child care and medical. It based on ADJUSTED GROSS right?? She just didn't want to talk to me and them told me that have no funding. Nice start to the process...


nestle02 profile image

nestle02 4 years ago from Florida, USA Author

Thanx! And sorry the response it so late - the loan limit varies by county, household and income. Your state should have a website for you to refer to - lemme know if you need any help finding it. And good luck - the waiting part is the worse but its well worth it!! =)


nestle02 profile image

nestle02 4 years ago from Florida, USA Author

I hope things go well for you!! Save your tears for after the closing =)


nestle02 profile image

nestle02 4 years ago from Florida, USA Author

Wow?? really?? Sorry you got stuck with a rude and unhelpful caseworker. USDA has a website that shows the income level - they took no deductions into account when they were reviewing my application.


Drew 4 years ago

I'm waiting on a reply from my caseworker on my USDA loan, but she was very roundabout the first time I spoke with her. The amount we were approved for is about 37% more than what we want to pay for a home. She was telling me that our principal payment is set in stone regardless of the cost of the house, do you know if this is true? The payment we were quoted is $619.50 based on a loan of $134.7k, and we are looking in the $85k range. Shouldn't our mortgage payment go wayyyyyy down at that point? We are very, very discouraged at this because we won't be able to afford the high payment she quoted me yesterday. Thanks!


Angie 4 years ago

Question for you... I'm in the middle of the process now. I found a home the appraisal is being done now. They told me it could take 14 days is that true? What can I expect after that as far as will they pull credit again require me to do anything else? My inspection is done. This had been an emotional rollercoaster for myself and kids.


John Lootens profile image

John Lootens 4 years ago from Grabill, Indiana

Here is my story. My wife & I submitted our application for a USDA direct loan in October 2011 and were at last approved the end of May. We have been renting our new home since January, after we sold our former home hopefully we will close in early July. Yes it's a long process but it's a very good program.


Riakas 4 years ago

Hi I wanted to know if they are still being able to roll in the closing into the loan because HUD won't pay but 3 percent and the closing is estimated very high so could you tell me more about getting them to roll in the closing for the loan!


Shakira Ford 4 years ago

I was wondering if there was a time limit for processing the application. I am almost at 90 days, and still have no answer. I was told to submit receipts for rent and she would review it and that would take a couple of days, but I'm not sure if by review that means approve or deny it.

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