No Money Down with a USDA Home Loan
The news has been full of stories about how lenders are tightening their standards and that paying 20 percent down is a must – especially for borrowers with credit problems. What these stories don’t tell you is that members of the military and certain other Americans may qualify for several mortgage products that require NO DOWN PAYMENT.
The United States Department of Agriculture (USDA) has two programs that allow folks with a steady income and decent credit to purchase a home without a huge cash outlay. You must, however, be willing to live in what the USDA considers “rural” areas.
The two USDA programs include a direct loan and a guaranteed loan. The latter is very much like an FHA loan and because the federal government offers a guarantee for loan repayment, lenders are more relaxed about lending to low income or credit-challenged borrowers.
The direct loan, on the other hand, is a loan in which the U.S. government loans the money directly.
Again, both loans require no down payment of qualified borrowers. So, how do you know if you qualify? Read on.
USDA Home Loan Income Requirements
Whereas a conventional loan requires the borrower to make more than a certain amount of income, the USDA loan wants to see your income be low Area Median Income (AMI). If you earn less than half of the AMI you are considered very low income. If you earn between 50 percent and 80 percent of the AMI you are deemed low income. The direct loan is for both of these types of borrowers.
The guaranteed loan is best suited to borrowers that earn up to 115 percent of the AMI. So, what is the AMI? It depends on where you live, so contact the Kris Lindahl Team and we’ll let you know what it is in your area.
USDA Loan Credit Considerations
The USDA is quite vague on their credit score requirements. They are more interested in assurances that you pay your bills in a timely manner.
They do, however, give applicants a chance to explain any negatives on their credit reports. The direct loan’s requirements are far more lenient than those of the guaranteed loan. This is because with the latter you will be working with a lender.
The USDA has a list of home types that you can and can’t purchase using the loans. First, the home must be in what the USDA considers a rural location – a town that has a population of 20,000 or less.
Of course, this caveat excludes St. Paul but if you’re willing to leave the city there are wonderful outlying areas that fit the bill. Forest Lake, Columbia Heights, Hugo and many other cities in the Twin Cities metro region all have populations below 20,000.
Additional requirements include:
- If you currently own a home within 50 miles of the one you hope to purchase, you won’t qualify for the programs.
- The house must be of modest size, design and price.
- Swimming pools are not allowed.
- The home’s market value must not exceed the loan limits for the area.
Finally, borrowers must be U.S. citizens or legally admitted immigrants. As well you must prove that you were unable to get a conventional mortgage and that you lack adequate housing.
There are additional restrictions that you can learn a bout by asking for your free copy of Kris Lindahl’s book: “The Homebuyer’s Guide to the USDA Loan.” Or, fill out the form below if you’re interested in learning more about USDA home loan programs