Using a USDA Mortgage for 100% Financing...No Down Payment

Many people do not think of housing when they hear USDA...they think of rural life farm animals, and not a mortgage that brings together the need to buy with no out of pocket money toward down payment, and lack of ability to afford more conventional or FHA mortgages. The USDA mortgage was designed to help low to very low income households or individuals purchase a home. Just in case you don't consider yourself as a low or very low income household, you might first realize that USDA uses that term a little more differently than what we might.

Let me make an example to help you better understand what kind of household incomes qualify for a USDA Mortgage Loan program that you might think do not. In the system that we have available through USDA, I run this as a loan officer for my clients needing qualification for a USDA Loan, I ran the total household income at $84,000 a year, considered 3 in the household (2 adults, and a child in day care), I was able to list $6,000 a year ($500 monthly) of expenses for the child in daycare (USDA will take that amount out of your household income to better help you qualify as low income), and still qualify for the USDA loan. So you can make $84,000 a year between two adults with one child and qualify for USDA. If you have more kids in the household, you can even make more. To me, I don't think about a household earning $84,000 a year as low income, and this is why I said above that USDA may define low to very low income differently than what you might consider as low or very low income.

Why are USDA loans so great?

First of all, they do not require any down payment. Let me say that again in a different way: USDA Rural Program loans are 100% financing and therefore require ZERO DOWN PAYMENT. Some of the other important details about them that help out so much include; you can roll in closing costs if the seller won't provide cost for you at closing (could help with as much as $3,000-$6000), if the seller will pay closing costs, there is no limit to how much they can pay (meaning the seller can pay ALL of the closing costs if agreed on), loan up to 102% of the appraised value, there is no monthly mortgage insurance (don't get this confused with mandatory Home Owner's Insurance that provides you with risk management where mortgage insurance supports the risk of the lender), you don't have to be a first time buyer to benefit from this program, and there is no sales price maximum (if you can afford it through underwriting evaluation, you can buy it).

The one piece of loan structure in the USDA program that is different to conventional, but not indifferent than FHA or VA, is the 2% participation fee. Just like FHA(upfront mortgage insurance 1.75%) and VA's (2%) up front fee you have to pay when you take on a Government loan, the USDA loan comes with a 2% participation fee. This is 2% of the loan...example: $100,000 loan, then you pay $2,000 up front in participation fee. The USDA loan is still less costly than the FHA option because the USDA does NOT have a monthly cost like FHA does. You pay the one time fee up front for the USDA loan, and then you are done.

The other point about USDA loans that make them so great is their interest rate. Since these loans are guaranteed by USDA, lenders' risks are similar to other Government loans and therefore, the interest rates on USDA loans are almost, if not the same as, present day conventional and FHA financing. So, no down payment, super low interest rate, 100% financing, and multitude of low to no closing cost options out of pocket in the end make up one of today's most beneficial lending programs...for those who qualify in the way of income and location of the subject property being purchased.

To find out if the home you want to buy, or if the neighborhood you are wanting to buy in, is eligible for the USDA program, check with your lender (Me, Brad Lynch at 469-450-2723, or email me at bl@fmillc.com). The cities, towns, or communities with population under 20,000 are typically going to fall in the USDA eligible limits.