For middle to low income families, one of the hardest parts of securing a mortgage and a home of their own is the
down payment required. Because so many live paycheck to paycheck, saving 20% of the home price as a down payment is near impossible. Lenders today require a solid financial track record that includes high FICO scores, great credit history, and a stash of cash for down payments and closing costs.
For those who do not qualify for a traditional mortgage due to lack of cash-in-hand, there is still a way to finance a reasonable home that requires zero down payment with underwriting that is more flexible than traditional mortgage lenders. There is one catch though – the home you wish to purchase must be located in a rural area. Location is a factor but the US Department of Agriculture is indeed offering an alternative for home buyers to afford a home of their own.
What Is a USDA Loan?
There are two types of USDA loans: direct and guaranteed. The type of loan you apply for will be dependent on your household income. Direct loans are suited for low to very low income families and the funds come directly from the government. Guaranteed loans (502 Loans) are issued through traditional lenders but have 100% backing of the US government. Both loans offer 100% financing that may also include financing the closing costs, meaning borrowers will be able to purchase a home with no money down.
Who Qualifies for a USDA Loan?
Eligibility varies by state but the USDA website offers several tools to help determine your eligibility. First, you can see if you qualify for either of the loans offered by the USDA and then you must see if the home you are looking to purchase falls within an approved rural area. Different states have different rural classifications and a rural property does not mean you must purchase a farm. Typically, areas with a population of under 10,000 will be deemed as rural but you must check with your local USDA office first.
How Much Money Can You Get?
There is no limit on the amount of the loan you can receive from the USDA but the application process will include an in-depth overview of your income, expenses, debt ratios, and credit history to determine how much you can afford to pay in a mortgage. Applicants do not need to have perfect credit to qualify but a credit score above 620 is expected. Once the initial evaluation process is complete and you qualify with the standards of the USDA, applicants will be given a loan amount for which they have been approved so they can proceed with finding a suitable home.
How to Apply
Applying for the loans can be done by contacting a local USDA Rural Development office and requesting a pre-application packet. After initial approval, depending on the type of loan you are to receive, the mortgage process is not unlike traditional lender processes for buying a home. Mortgage applications are to be completed and applicants must provide all necessary financial paperwork to avoid delays in processing.
To find out more about the USDA loan program, visit the USDA official website to see if you qualify for a no-money down loan program.
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The USDA loan has really helped our market area in Bryan & Defiance and other
nearby communities in Northwest Ohio. The key is to find customers who have established GOOD credit. This is an excellent loan program for homebuyers who especially find it challenging to save for down payment money in this challenging economy. If the sellers
receive a fair offer, they have even paid all or the majority of the Buyers closing costs! One less roadblock to help homebuyers achieve their “American Dream of being a homeowner.”