With all the changes in the mortgage industry you probably thought zero down programs were gone but there's still one program available.
What is a USDA Home Loan?
USDA stands for United States Department of Agriculture. A USDA mortgage loan might be right for you if you want to purchase a home with no down payment. If you’re unsure about your credit rating, or have concerns about a down payment, USDA mortgage loans can give you piece of mind with super low closing costs and flexible payment options.
What Types of Loans does USDA offer?
Currently, there are two kinds of USDA mortgage loans available for single family households:
USDA Guaranteed Rural Housing Loans
USDA Guaranteed Loans are the most common type of USDA home loan and allow for higher income limits and 100% financing for home purchases. USDA Guaranteed Loan applicants may have an income of up to 115% of the median household income for the area. Area income limits for this program can be viewed here. All USDA Guaranteed Loans carry 30 year terms and are set at a fixed rate.
USDA Direct Rural Housing Loans
USDA Direct Housing Loans are less common than USDA Guaranteed Loans and are only available for low and very low income households to obtain home ownership, as defined by the USDA. Very low income is defined as below 50 percent of the area median income (AMI); low income is between 50 and 80 percent of AMI; moderate income is 80 to 100 percent of AMI. Click here to see area income limits for this program.
What are the advantages of USDA Mortgage versus Conventional Loans?
USDA mortgage loans offer many benefits and protections that you won’t find in other loans including:
USDA Mortgages are Credit Flexible
USDA mortgage loan requirements are not totally credit score driven, although it is required to have at least a 620 FICO score to obtain an approval through most lenders.
USDA Rural Loans Require No Monthly Mortgage Insurance
A distinct advantage of a USDA Home Loan, as compared to a conforming loan, is great interest rates and no mortgage insurance (MI).
USDA Mortgages Require No Down Payment
USDA Mortgages have no down payment requirement. Other loan programs don’t allow this.
What factors determine if I am eligible for a USDA Loan?
To be eligible for an USDA Home Loan, your monthly housing costs (mortgage principal and interest, property taxes, and insurance) must meet a specified percentage of your gross monthly income (29% ratio). Your credit background will be fairly considered. At least a 620 FICO credit score is required to obtain an USDA approval through most lenders. You must also have enough income to pay your housing costs plus all additional monthly debt (41% ratio). These ratios can be exceeded somewhat with compensating factors. Applicants for loans may have an income of up to 115% of the median income for the area. Maximum USDA Guaranteed Loan income limits for your area can be found at here. Maximum USDA Direct Loan income limits for your area can be found athere. Families must be without adequate housing, but be able to afford the mortgage payments, including taxes and insurance.
See more on USDA Mortgage Requirements.
What is the maximum amount that I can borrow?
The maximum amount for an USDA home loan is determined by:
Maximum Loan Amount: The is no set maximum loan amount allowed for an USDA Residential Loan. Instead, your debt-to-income ratios will dictate how much home your can afford (29/41 ratios). Additionally, your total household monthly income must be within USDA allowed maximum income limits for your area. Maximum USDA Guaranteed Loan income limits for your area can be found at here.
Maximum financing: The maximum USDA Rural Loan amount will be 102% of the appraised value of the home (100% plus the 2% USDA home loan guarantee fee).
How much money will I need for the down payment and closing costs?
Are you curious what is the minimum down payment for an USDA Rural Loan? USDA Mortgage Loans require no down payment and they allow for the closing costs to be included in the loan amount (appraisal permitting).
What property types are allowed for USDA Mortgages?
While USDA Mortgage Guidelines do require that the property be Owner Occupied (OO), they do allow you to purchase condos, planned unit developments, manufactured homes, and single family residences.
Can I get an USDA Mortgage after bankruptcy?
Criteria for USDA loan approvals state that if you have been discharged from a Chapter 7 bankruptcy for three years or more, you are eligible to apply for an USDA mortgage. If you are in a Chapter 13 bankruptcy and have made all court approved payments on time and as agreed for at least one year, you are also eligible to make a USDA Loan application.