There is a loan program that’s been around for quite some time but gets very little attention from first time home buyers. The USDA home loan today remains the best option for those wanting to buy a home with no money down who are not VA eligible. If you want to buy a home in Indiana close with as little cash as possible then a USDA loan should be one of your choices. What is the USDA home loan program and how can it be used?
The USDA loan requires zero money down, 100% financing and has very competitive interest rates. The USDA mortgage does come with a couple of requirements that must be met in order for a lender to process and approve a USDA loan request. The loan can only be used to finance a home located in an approved area. That means the loan can’t be used to finance a property in downtown Indianapolis or surrounding highly populated locations, but the outer lying areas of those cities may be in approved.
For instance, while Kokomo is largely considered a region not available for a USDA loan surrounding communities such as Ridgeway or West Middleton are. Any single-family home, townhome or approved condo is ok as long as the property is located in one of the approved zones. Mobile & Manufactured home, building on your own land financing is not permitted.
For those who are considering a USDA home loan one of the first things is making sure the proposed property is in fact located in an eligible region. If it is, the applicants must also pass a household income test as the 502 Guaranteed program is also designed only for middle to lower income households. The USDA loan can be used to finance a property as long as the household income does not exceed 115% of the median income for the area.
Most Indiana households of 1-4 members will have income limits of $103,500 for 2022. It’s important to note here the lender will subtract certain allowable deductions like – child care expenses, elderly members of the household, dependents, etc. Households with 5+ members can make over $136,500 in some cases.
The USDA home loan is one of three mortgages that are considered “government-backed” loans, FHA and VA being the other two. A government-backed loan is so-called because the mortgage company is compensated for part or all of the loss should the property go into default. As with other government-backed mortgages, this compensation is financed with a form or mortgage insurance the home buyers pay.
The USDA mortgage has two separate forms of mortgage insurance, one that is rolled into the loan amount and one that is paid annually in monthly installments. The upfront fee that is rolled into the final loan was adjusted late last year and today is 1.% of the sales price of the home. On a $100,000 loan, the upfront fee is $1,000 for a final loan amount of $101,000. The annual premium (monthly PMI) was recently reduced from 0.50% to 0.35% and based the final loan amount. On a $101,000 the annual fee would then be $353.50 paid in $29.45 per month installments.
As long as the property is located in an eligible area and the applicant(s) meet the income limits, USDA financing can be used by anyone who qualifies based upon credit, income, and debt. Read the detailed list of USDA FAQ’s here. If you want to finance a home with a limited down payment, the USDA program might be the right choice. Speak with a loan officer today who can explain all the details by calling ph: 800-743-7556 or just submit the Info Request Form on this page.
Indiana: Indianapolis, Fort Wayne, Evansville, South Bend, Carmel, Bloomington, Fishers, Hammond, Gary, Muncie, Lafayette, Terre Haute, Kokomo, Noblesville, Anderson, Greenwood