USDA Loan: How to Buy a Home for $0 Down
If you’re looking to buy a home, but have little to no money for a down payment then the USDA Loan may be the fit program for you. In this article, we’ll dive into everything you need to know about USDA Loans, including their types, eligibility requirements, advantages, and limitations.
Along with VA loans, the USDA Loan is a government-backed loan option. It is one of the last remaining $0 down payment mortgage options for homebuyers. Because the government is guaranteeing these loans against default, lenders can confidently extend more favorable terms on their loans.
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USDA Loans Benefits
USDA home loans are rapidly gaining traction among aspiring homeowners, primarily due to their compelling benefits that cater uniquely to rural and suburban buyers. These loans are attractive because they offer 100% financing, meaning no down payment is required, which significantly lowers the entry barrier for purchasing a home.
Additionally, USDA loans come with reduced mortgage insurance costs and below-market interest rates, making homeownership more affordable. The eligibility criteria based on location and income levels also ensure that these benefits reach those who need them most, promoting wider economic development in less densely populated areas. This blend of advantages is why more individuals are turning to USDA home loans as a viable path to homeownership.
No Down Payment
The USDA Loan does not require a down payment from the home buyer making homeownership more accessible to individuals who may not have been able to save on their own.
Over the last 10 years home prices have increased significantly making it harder for renters to save the required 3.5-20% down payment for FHA and Conventional Loans. it has become a growing favorite for first-time homebuyers.
Low-Interest Rates
Due to the government guarantee, interest rates for USDA loans are some of the lowest on the market. It is important to know that the lender will take into consideration your credit score and personal financial history when providing you with rate options. But that rates are typically much more competitive than those compared with other mortgage options.
Low Monthly Mortgage Insurance
Instead, the loan employs a different fee structure, consisting of an upfront guarantee fee paid during loan closure, and an annual fee incorporated into your monthly mortgage payment. The upfront fee amounts to 1% of the total financed amount, while the annual fee equates to 0.35 percent of the current balance on the loan.
Among various government-backed mortgage products, USDA loans stand out by offering the lowest funding fee, ensuring cost-effective financing options.
Flexible Credit Guidelines
While conventional lenders typically seek a credit score of 640 or higher, aiming for around 720 can secure the lowest interest rates. Interestingly, USDA loans do not impose a minimum credit score requirement. However, to utilize the USDA’s automated underwriting system, a score of 640 or higher is necessary. Fear not, as borrowers with lower credit scores can still qualify for USDA loans through manual underwriting, ensuring accessibility to this advantageous financing option.
USDA Eligible Areas
These eligibility requirements are in place to ensure that the program serves its intended purpose of providing affordable homeownership opportunities for low- to moderate-income families in rural areas.
Rural development and homeownership are crucial for the sustainability and growth of rural areas. This is why the home you want to purchase or build must be located in a USDA-eligible area and meet the USDA’s minimum property standards.
The good news is that according to the USDA, as of Febuary 2021 07% of landmass in the United States was located in a USDA-eligible area!
