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Room to Roam with No Money Down Rural Development Loans Encourage Rural Living

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Above image credit: The McArdle family enjoy their new home on five acres in rural Leavenworth County. They were able to purchase the home using a rural development loan. (Cami Koons | Flatland)
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7 minute read

“Maybe next year, we can get a cow,” 7-year-old Knox McArdle told his mom after running around his huge backyard in rural Leavenworth County. 

The McArdle family had only been in the house a couple of months, but their two children already were dreaming of future adventures they’d share on the property. 

Kendra McArdle and her husband could actually consider purchases like a cow, or building a fence for their horse, because they didn’t have to empty their savings to make a down payment on the house. 

For no down payment, the McArdles bought their three-bedroom, two-bathroom farmhouse on five acres of land. How? They qualified for a rural development loan through the U.S. Department of Agriculture (USDA). 

Two young boys jump on trampoline.
Kingston (4, left) and Knox (7) have plenty of room to play and grow at their new home. (Cami Koons | Flatland)

“You save up all this money, and you have to put it down on a house and it really makes no difference, and then you have no money left in your savings,” Kendra McArdle said. 

USDA Rural Development Loans are available to buyers in eligible areas whose household income does not exceed 115% of the area median income. 

“Providing these affordable homeownership opportunities promotes prosperity, which in turn creates thriving communities and improves the quality of life in rural areas,” according to the USDA website.

Lenders, real estate agents and buyers alike find the loans are a great way to get into a house sooner. 

What Counts as Rural? 

The McArdles were tired of neighbors, homeowners associations and a small yard, so moving out to the country was an easy choice for them. 

But a rural development loan isn’t just for folks who want to live off of dirt roads. 

Joy Mestagh, a real estate agent for Town and Country Real Estate, serves rural and urban areas of eastern Kansas. She’s helped many families find properties using USDA rural development loans. 

“It can be a small town in a rural area,” Mestagh said. “You can still get a USDA loan on a house that sits in town. It doesn’t have to be out on land.” 

The current eligibility includes more locations than one might think. Many eligible properties are less than 30 minutes from downtown Kansas City. 

Rural Housing Loans

Map of Kansas City area shows tan colored section over the metro area.
Areas that are not eligible for USDA rural development loans are tan. (Screenshot from USDA Eligibility)

After years in the industry and working with these types of loans, Mestagh said it’s not difficult to find the right properties. 

It is, however, hard to find any specific property in the current market. 

“There’s not a lot of properties available right now,” Mestagh laughed. “And I try to stay active in six counties at all times.” 

According to the Kansas City Regional Association of Realtors, total inventory of available properties was down more than 30% in January 2022 compared to the previous year. There was less than one month’s supply on the market.

The report also notes the average price of a house in the region has increased 13.7% in the last year.

It’s not projected to get better either.

A study predicts this coming spring will bring more competition, with higher housing costs, fewer available houses, and higher mortgage rates. The study expects buyers to pay (on average) $220 more a month on mortgages. 

Chris Harrison, a real estate agent with Keller Williams who works in rural Missouri, faces the same shortage of listings and high prices as Mestagh.

USDA loans require the property to pass an appraisal, which Harrison said can also make it difficult to find an affordable property right now. 

While a buyer might be fine with a fixer-upper and doing the work themselves, it doesn’t matter. If the house doesn’t meet the USDA appraisal requirements at the time of purchase, it’s ineligible. 

“(If) they’re looking at homes for $100,000 to $150,000, those are unicorns that also meet USDA requirements,” Harrison said. “Houses are usually marked at $150,000 for a reason.”

The requirements are pretty standard. Is the property structurally sound? Is the roof about to cave in? Basically, before the USDA assumes most of the risk for this property, it wants to make sure the investment is sound.

It’s not impossible to find an eligible property, just difficult.

Harrison and Mestagh had the same piece of advice for anyone looking to use these loans: go through a lender. 

Getting Approved

USDA rural development loans aren’t much different than traditional loans, and while they can be obtained by individuals, the process is streamlined and expedited by a lender. 

Ben Porras, a branch manager with Union Home Mortgage in Overland Park, works directly with the USDA to help get his clients these loans, along with traditional mortgages. 

Porras wants folks to buy homes, build equity and to have a piece of property. He loves working with first time buyers because he’s able to tell them about all of the options they have. 

“If your credit score is not strong, you don’t have money (saved), you can still qualify for (zero dollars) out of pocket for a home,” Porras said. “That’s awesome.”

That being said, the better someone’s credit score, the lower the interest rate will be on the mortgage. For a USDA loan, Porras said this could range from 3.875% to 4.5%. 

Because he works directly with the USDA, approval can happen a lot faster than if someone were to try and do it on their own. Plus, he said the USDA recently improved its system, meaning what used to take five or so days can now happen the same day. 

“They’ve gotten a lot better internally,” Porras said. “Their platform is monitored, so as long as you fill everything out, submit it, print your findings, turn everything in, they’ll get you turned around in a couple of days.”

Porras sees this type of loan becoming more popular, especially as inflation drives the price of everything higher. He believes folks will want to start building equity by owning a home rather than renting. 

“It’s just a way to get you into the house quicker, that’s all it is,” Porras said. “Stop throwing money down the rent rabbit hole.”

The USDA loans are great for that because someone who can’t afford a big house in the city can live in the country for three or four years and then have something to make a down payment on a house in the city, if that’s what they want to do.

Porras said about 25% of the time his clients will change their initial plans, and decide to live further out from the city in order to qualify for the attractive and accessible USDA loans. 

“You’ve just got to try to give them the benefits,” Porras said. “The downfall is you’re going to probably drive a little further, but today with so many people working virtual, it’s not quite the issue as it was.” 

Finding Home on the Range

Once the McArdles were pre-approved for their rural development loan, it was time to hunt for the right house. 

Before finding their remodeled farmhouse, McArdle said she toured and really liked several houses, but learned those properties didn’t accept USDA loans. 

“They’re stronger, but they’re not strong on paper. It’s so hard to portray that down to the seller.”

Chris Harrison, Keller Williams real estate agent.

Harrison said this is something he sees frequently, and is frustrated by. In a stack of offers, a USDA rural development loan will usually get shifted to the bottom of the pile. 

When it comes to just looking at numbers, especially in today’s competitive market, the USDA loan can look less serious. 

To be fair, it’s not bringing a dime to the table. Even U.S. Federal Housing Administration (FHA) loans require a 3.5% down payment. 

Harrison looks beyond the paperwork.

“I can tell you that a USDA buyer … is more enthused and eager to buy and ends up being the better buyer,” Harrison said. “I’ve taken USDA buyers over conventional or FHA because I knew how bad they wanted that house, and how hard they were going to fight to get it.”

A conventional buyer might look better with a 20% downpayment on the table, but he said they’re usually more entitled. They want inspection items taken care of, or small items fixed before they sign.

“The USDA buyer will say, ‘We don’t care about all that.’ This is USDA eligible, we just need the house and we’ll take care of those things,” Harrison said. “They’re stronger, but they’re not strong on paper. It’s so hard to portray that down to the seller.”

Not every seller has the same outlook, and right now, it’s a sellers market. 

“Today is different than it was six months ago,” Harrison said. “So in today’s market now the sellers have such an upper hand. They won’t even, a lot of times, list USDA as a possible way of purchasing the home.” 

Two boys in black shirts pet brown horse. Man in white shirt assists.
Not paying a down payment on their home allowed the McArdles to bring their horse out to the property as soon as they moved. Here, Josh McArdle assists his children as they feed carrots to a horse on their property. (Cami Koons | Flatland)

Regardless, Harrison said almost 40% of his buyers end up using USDA rural development loans. 

Even in the tough market, the McArdles made it work. 

Now, a couple of months into owning their home, the family is still happy with the decision. 

The boys have a trampoline in back, the horses have pasture and there’s not a neighbor in sight. 

“It’s literally in the middle of nowhere, and it’s beautiful out here,” McArdle said.

Cami Koons covers rural affairs for Kansas City PBS in cooperation with Report for America. The work of our Report for America corps members is made possible, in part, through the generous support of the Ewing Marion Kauffman Foundation.

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