US home buyers still have one good no down payment – USDA Rural Home Loans. 100% financing makes USDA loans among the most desirable of loan programs for home buyers located in approved locations. The only other programs out there that offer this today are VA loans and that program is strictly for the military.
Even better than just no down payment, using the USDA program also means the possibility of rolling in closing costs or using grants and gift funds, something most other programs won’t allow borrowers to do.
Certain buyers may even qualify using “non-traditional” credit and you don’t have to have amazing credit to get approved either. You should have at least a 620 credit score, but you may be able to use credit references like cell phone, car insurance and utility bills to build out your credit if you don’t have very much of it. Additionally, USDA 502 Guarantee interest rates are some of the lowest around and often better than conventional mortgage rates. Not to mention the monthly mortgage insurance is also much less than FHA mortgages. Let’s take a look at some of the advantages of USDA home financing.
USDA Home Loan Benefits:
- No Down Payment is required. Borrowers who qualify for a USDA Rural Development home loan have the flexibility to pay $0 out of pocket for a down payment. Additionally, the USDA Loan allows borrowers to use a gift or grant to go toward their mortgage.
- Low 30-Year Fixed Interest Rates. With the guarantee of the U.S. government, a lender can offer competitive interest rates to qualified individuals and families.
- Easy Credit Guidelines. Borrowers must still provide a credit history report. But the flexible guidelines allow potential homeowners with spotty or bad credit may still qualify for USDA.
- No Maximum Loan Amount or Purchase Price. The USDA Rural Development program has no maximum loan amount limit or purchase price limit. However, the program does have debt-to-income ratio caps, so mortgage companies will still determine the maximum amount of loan each applicant is eligible for based on their ability to repay.
Certain USDA eligibility factors home buyers need to be aware of:
- Income eligibility is capped at 115 percent of your median area income. To check your eligibility for the 502 Guaranteed program, use the income eligibility calculatorat the USDA website.
- USDA Rural Housing is strictly a 30-year fixed-rate loan.
- You must be able to qualify with maximum debt-to-income ratios of 29/42. To determine if you qualify, add the loan principle, taxes, insurance and interest and divide the sum by your gross monthly income. If this calculates to 29 percent or lower, you qualify. Additionally, your total debt, divided by your gross monthly income must be equal to or less than 42 percent.
- No co-signers are not allowed unless they occupy the home.
- You must be at least two years out of a bankruptcy discharge and be “credit worthy.” At least four years from short sales or foreclosure regardless of how high your credit score is.
- The property must be in an approved rural area – Many surprising locations in the U.S. are still eligible.
- You cannot own another home within commuting distance of the home you wish to purchase. Basically, if you own a home now, you will need to sell and close before you can close on a new home with a USDA loan.
Getting pre-approved for the USDA loan only takes minutes. To learn more about the program, see the USDA loan eligibility link. Buyers can also view many helpful USDA FAQ’s. Borrowers that have questions or what to learn more can submit the Quick Contact Form on the right side.