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What is the USDA Home Loan Program?

Relatively unknown, the USDA Guaranteed Rural Housing Program is a boon for home buyers and home owners who live (or want to live) in a rural setting and need financing with no down payment or home equity.

Like the FHA program, USDA loans are made by private lenders with a governmental guarantee to protect lenders against potential borrower defaults. There is one-time "guarantee fee" of 2%, which is paid at closing. Unlike the FHA program, there is no continuing insurance premium. The up-front fee covers the entire insurance cost.

Of course there are some limits in order to obtain this compelling advantage, which will be discussed in a moment, but here are some additional advantages of this exceptional loan program:

USDA Mortgage Program Advantages

100% financing with no down payment.

No cash reserves are required.

Loan can include closing costs and some repairs if appraised value is higher than sales price.
Borrowers do not have to be first time home buyers.

One time 2% Guarantee Fee may be financed into loan amount (i.e., 102% maximum loan-to-value ratio is possible).
No monthly mortgage insurance premium payment is required.

No loan limits. (See income limits, below.)

Loans are structured as 30 year, fixed-rate loans. Rates are comparable to those on conventional loans. The interest rate may be "bought down" for the first year or the first two years in exchange for an extra payment up front. This extra payment can be contributed by the seller.

Flexible Underwriting-Payment-to-Income ratios in excess of 29/41 may be considered with compensating factors, including credit scores over 660, job stability and similar housing expense.

Little additional paperwork. USDA Rural Development requires only one additional form to be signed by lender and borrower for inclusion in loan submission package.

Property Requirements for a USDA Mortgage

Getting a home loan with no money down does require meeting some specific rules regarding the home you plan to buy.

Properties must be located in eligible rural areas (generally towns of 25,000 or less that are removed from an urban area.) Contact us if you want to check to see if a particular property or area is considered eligible.

Site value should not exceed 30% of the total appraised value. This usually means that homes with large acreage may not qualify.

Properties must be one-unit, non-farm, primary residences, including single family dwellings, condos, and PUDs.

Income producing properties are not eligible.

Manufactured homes are eligible if unit is 12 months old or newer and never occupied. Unit must be placed on permanent foundation and meet all required of FMHCSS. A builder's warranty of no less than one year must be issued to the home buyer.

Properties with in-ground swimming pools are eligible only when any contributory value given to the pool is backed out of the loan amount.

Borrower Requirements for USDA Mortgage

There also are specific borrower qualifications in order to obtain the USDA no-down financing package.

Your family income may not exceed 115% of the U.S. median. Contact us to check income limits for your area.

The ratio of the proposed payments compared to your income must not exceed certain limits. We can do those calculations for you to tell you how large your USDA no-down mortgage could be.

Your credit score history must be adequate. It does not have to be stellar - allowance is made for average credit scores and some past credit difficulties.

Interested in a No-Down Payment Home Loan?

If you are considering a home purchase and have been looking into down payment assistance programs, perhaps you would also like to consider a no-down-payment loan. Remember, the property must be in a rural area and your income cannot exceed certain limits in order to qualify.

If you just want a quick, rough idea of how the numbers work, try our Home Affordability Calculator:

Want to learn more? Call us!