For buyers wanting to finance a home with as little cash as possible have an option that unfortunately not too many take advantage of. The United States Department of Agriculture, or USDA, offers a mortgage program that requires absolutely no money down with some very competitive interest rates. The other government-backed loan that doesn’t need a down payment is the VA home loan program but that is only available to veterans, active duty and certain National Guard and Armed Services members. The FHA mortgage program only asks for 3.5 percent down. Yet for those who qualify for the USDA home loan, it certainly needs to be explored as a financing option. Secure fix interest rates and $0 down payment makes the USDA Rural Housing program perfect for first-time buyers.
The USDA program has been around for quite some time and there have been some adjustments made over the years but the goal is still the same- to provide financing options for those in rural or semi-rural areas. The USDA identifies specific regions across the country, identified by zip code, that allow for this special program. If someone is thinking about buying a home and wondering if it qualifies for the program, the USDA has a portal which allows you to input the property address to see if it is in an eligible area. If the home is eligible, there is one more step.
For those living in the property being purchased, the income of all wage earners cannot exceed 115 percent of the median household income for the area. There are some calculations that need to be made when determining qualifying income so it’s a good idea to speak with a loan officer that can correctly calculate household income. Sometimes, those who make this calculation on their own can run the wrong numbers and determine their income is too high when all they did was make a mistake when using the online calculator USDA provides. If the income is in line and the property is located in an eligible area, the borrowers can then qualify for a USDA loan and are approved like any other mortgage program.
The USDA loan carries a guarantee fee. This guarantee fee is in favor to the lender and should the borrower ever default on the mortgage the lender is compensated for the loss. That’s why lenders who approve USDA loans regularly like making them. As long as the lender follows the proper USDA guidelines, the lender doesn’t have to worry about a loan going into foreclosure or being forced to buy back a loan. This guarantee is financed by the “guarantee fee.” This fee is both an annual fee and an upfront, one-time charge. Currently, the upfront fee is 1.0 percent of the loan amount. This upfront fee is rolled into the loan amount. There is also an annual fee that is paid in monthly installments. The new annual fee amount on October 1 is 0.35 percent, down from 0.50%.
Let’s take a look at how those fees are calculated using a $200,000 sales price. There is no down payment and using the new 1.0 percent guarantee fee, $2,000 will be added to the loan amount. In addition, the annual fee of 0.35 percent is $1,000 per year and paid in monthly installments of $58. Note, this program, like the other government-backed home loans, are only available for a primary residence and cannot be used to finance a second home or a rental property.
The USDA home loan program is a very attractive option and if you think you qualify and are looking for a home in an eligible area, you should first speak with a loan officer with experience working with the USDA home loan program.
Buyers that have questions can reach us anytime at ph: 800-743-7556 or just sumbit the quick Info Request form on this page (mobile users will find the form at the very bottom)