There are three mortgage programs available today that are government-backed – USDA, VA and FHA mortgage programs. Of these three programs, two require zero down payment. The VA loan does not require a down payment but is only available for veterans of the Armed Forces and Reserves and most active duty personnel. The other, the USDA mortgage, has no restrictions regarding military service and also does not require a down payment. Is the USDA Rural Housing Program right for you?
The United States Department of Agriculture backs the USDA program and for those wanting to buy and finance a home with as little cash to close as possible, the USDA loan might very well be your best choice. In addition to not having a down payment, interest rates on USDA loans are extremely competitive when compared to conventional loan programs with a 5% down payment. One slight caveat however, USDA programs come with fixed rates only. ARMs and hybrids aren’t available but in light of where interest rates are today, a fixed rate is likely the better choice anyway.
In order to take advantage of the USDA loan, the subject property must be located in an area approved by USDA Rural Housing. As the name might imply, the program is designed to help consumers buy and finance homes in rural and semi-rural areas. Yet the approved areas can be surprising to many as a particular zip code might be anything but rural.
In fact, nearly 97% of the United States is in an eligible zone. These approved areas are reviewed every three to five years and were most recently adjusted in 2014 which indicates the areas will stay the same at least until October 1, 2017. These changes are made based upon changing demographics and population shifts. Many popular locations in AZ just outside of larger cities like Phoenix, Tucson, Flagstaff and Scottsdale are still eligible for USDA financing. Contact us below to discuss your location in detail.
The program also limits the household income in order to qualify for the program as well. There is a calculation that approved USDA lenders use for all income-producing members in the household. But in general the household income limit for all adults living in the property cannot exceed 115% of the median household income for the area.
The USDA government-guarantee is financed with both an upfront, one-time mortgage insurance premium of 1.00% of the loan amount and is rolled into the mortgage. The annual fee is 0.35% of the loan balance and is paid in monthly installments. Both premiums are extremely competitive and much less when compared to the more popular FHA mortgage. While most mortgage companies can approve a USDA loan application, fewer lenders even offer the program which is unfortunate. For lenders that do process the USDA mortgage, they know that the loan is guaranteed and should the loan ever go into default, the lender is compensated for the loss. Conventional loans have no such guarantee and lenders take full responsibility for the approved mortgage.
The USDA mortgage is not limited to first-time homebuyers and can be used by any qualified buyers when the property is located in an approved area. Keep in mind the USDA program is strictly reserved for primary owner-occupied homes. Investment homes are not eligible. An experienced USDA lender can help qualify you and make sure the property you’re considering buying is in fact located in an approved area.
Homeowners that currently have a USDA loan can learn more about the USDA Streamline Assist Refinance here.
For assistance, please contact us at ph: 800-743-7556 or just submit the Info Request Form on this page.