Need a zero-down mortgage? Look outside the city
If your home is in a designated rural area, and you meet income requirements, you may qualify for a loan with no down payment.
© Dana Hoff/Beateworks/Corbis
The zero-down mortgage is still alive through the Agriculture Department's rural-development housing program.
People buy houses without down payments or mortgage insurance with USDA loans. The catch? The property must be in a designated rural area. The surprise? Some eligible properties are in places that most people would not consider rural. (Bing: What is mortgage insurance?)
"The terms of eligibility for a USDA loan are twofold, because not only does the borrower need to qualify, but so does the property," says Tommy Xintaris, a senior mortgage banker with Envoy Mortgage in Houston, which lends throughout Texas. "It's a small box that borrowers have to fit into, but it's a great program if they do."
Do you qualify?
First, to be eligible, the property must be in a designated rural area. The USDA website lists counties designated as rural. But some properties are eligible for USDA loans in counties that are not designated rural, Xintaris says. There are eligible homes on the outskirts of Austin, Texas, for example.
"The best way to find out about property eligibility is to enter an exact address (on the USDA site)," Xintaris says.
After the home's location is deemed eligible, the borrower must meet income and credit standards.
"Borrowers must have a low to moderate income and yet be able to afford the payments on the property," says Paul Defngin, a mortgage planner with Apex Home Loans in Rockville, Md. "USDA has established income limits. Borrowers can enter their ZIP code, income and number of members of the household and will know immediately if they qualify for the program."
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To check on income limitations by county, go to the USDA's income-eligibility site.
Defngin says borrowers must demonstrate they can afford the mortgage payments by meeting the USDA debt-to-income ratios of 29% for the housing payment and 41% for the overall debt to gross monthly income.
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The borrower pays an upfront guarantee fee of 3.5% of the loan amount, which most people opt to roll into the loan. In some first-time-buyer programs, borrowers can have their closing costs paid.
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USDA loans are not available to investors. The home must be the borrowers' primary residence. Most construction types are eligible, including manufactured and modular homes, as long as they meet condition standards.
Nick Serrano, sales manager for Greater Nevada Mortgage Services in Carson City, Nev., says the program is for people who do not own homes.
"The program isn't limited to first-time buyers," he says, "but if someone owns a house and wants to buy another with this loan, (that person has) to sell it first and pay off the mortgage in full."
Unlike most low- or no-down-payment loans, Defngin says, USDA loans do not require mortgage insurance.
Lenders qualify borrowers based on their credit score and their debt-to-income ratios. USDA does not set a minimum credit score, and lender minimums vary. Xintaris says Envoy Mortgage requires a minimum score of 600, while Serrano says Greater Nevada Mortgage Services requires 620. Defngin says Apex Home Loans requires a 640 credit score.
USDA home loans are not subprime. Serrano says.
"A lot of people are frightened by the idea of zero percent financing, but this loan is very different from subprime loans," he says. "First, the loans are guaranteed by the government. Also, the loans are stable, 30-year fixed-rate products, and borrowers must fully document everything and qualify for the loan."
Serrano also says: "USDA loans used to be the best-kept secret, but now this loan program has momentum. It's so popular that they ran out of their budget earlier in 2010, although Congress has restored funding now.
"The only negative to this loan at all is the fact that not every property and not every individual qualifies. But if someone does qualify, there is no reason not to take advantage of this program."
We purchased a home in 2009 with the USDA guaranteed rural housing loan. We went to a mortgage broker who told me about the loan. They shopped the best deal for us and the loan is with Chase at 5.25%, fixed rate, 30 year. We were lucky enough to find a remodeled 1980s house that met all of the criteria. We made an offer less than the owner was asking in a slow market. He was happy to sell.
This is a good loan if you plan to stay put. You wouldn't be able to sell and pay a realtor commission until you build equity. But it beats renting. My mortgage, taxes and insurance total less than renting the same house in this area and I have the tax deduction for the insurance. In addition, we can do what we want without having to answer to a landlord.
I was blessed to build a new home in Texas last year, with $0 down. It is in an area that is growing, but now still considered rural. (Shopping and nightlife is less than 30 minutes away).
Without the rural financing I would not have been able to afford the down payment required through normal processes.
With the market as it is, I was certain that it is and read my closing documents, a "fixed rate" loan.
USDA is the way to go!!!!!
Buyers be wear! I bought 128 acres in Button Willow and then Fed put Environmental protection on the property.
Cannot build on it but they still want me to pay taxes.
"Rural" does not mean "down on the farm" people!!!! The "rural" part is based on the population, not on the wildlife, dirt roads or pigs next door! Most cities or towns under 15,000 people qualify. The town I live in and the 6 towns surrounding me qualify for this loan. Just because it's not in the big city (which is St. Louis for us) doesn't mean it's all farmland and driving an hour to get anywhere. If you like the City, stay in the City. If you like smaller town living... you can get a house with no money down, and a lower interest rate too! And no mortgage insurance either!! Which is a rip off through and through! We bought our 2nd home (final home) with this program and it was great. Our first home was FHA. We used our saved up money to buy furniture and have some set aside for maintenance. Why use up all your savings if you don't have to??
We didn't borrow more than we could afford because of this program either. People need to find out what they can afford monthly, and stick to that price range or UNDER. NO MATTER WHAT. It's the people that go over their limit that have caused the problems... not us, the responsible borrowers and not the lenders either. It's up to the homebuyer to be responsible enough to realize that just because you CAN get more money, doesn't mean you NEED more money.... ESPECIALLY if you don't make enough monthly to cover it. So... I think it is a great program for people who can stick to a budget or price range that they KNOW they can pay, and save your savings for maintenance, emergencies and vacation!
Im a Texas Mortgage Broker and Im closing USDA 100% financing loans several times a month. The USDA funds HAVE BEEN reissued, however lots of lenders funded these loans regardless way before January 2011 when the funds were replenished so if youre working on deals that have not closed...its not USDA funds, its your lenders lack of experience to get you closed. Dont listen to the comments of people that are entirely unexperienced to be even commenting on this article, they have no idea what they are talking about.
and no this is NOT an interest only type loan that caused any kind of market meltdown, its a 15 or 30 yr fixed, good solid purchase money loan. Taxes and Insurance "escrows" are required to be paid each month, no PMI (private mortgage insurance) is required to be paid in the monthly note, unlike the FHA loan, USDA does charge an upfront 3.5% "funding fee" which is called MIP or Mortgage Insurance Protection which is rolled into the 30 yr note, thats whats paid to USDA to keep this awesome loan program funded.
If youre in Texas and are interested in getting approved for a 100% financing USDA loan, please feel free to visit brushmortgage .com and email/call with any questions. Thanks!
I would never buy a house with zero down, I saved up to buy my first house till I had at least 20% down that not only lowered my payments so I could afford to pay the other bills and maintain the home it also allowed me to save money so when I buy my next home this year I can pay cash.
I rented for almost 15 years before buying my first home and I lived in some pretty cheap places, not run down or bad areas of the city. Folks before you go and buy a home you need to save do not believe the bank when they say if you are making 40 grand a year you can afford a 160 grand home, they do not care about you they care about one this your money and when you cannot make that house payment they will take your home and you are left with nothing and have to start all over.
I myself have gone from taking out loans to paying cash for for everything and I have more spending money while making less then I did before.
The USDA rural development program is great! I purchased my brand new home through this program in Aug 2010. I received 100% financing with 4.25 % fixed interest. I am a single mother of two children and we were blessed to get this home at a great price in a great neighborhood. We are walking distance to a brand new shopping center and the price of gas is cheaper in this town too. The schools are good and my children love it. I would recommend this program to anyone who wants more for less. I am from the city and still work in the city. My commute is about 45 minutes into work. It was difficult getting adjusted to the early rise and shine and the commute for the first couple of months, but I am well adjusted now and don't have any regrets.
Thank you very much for sending the urban huddled masses, yearning for freedom and no-down homes, to the our rural countryside life with all their urban expectations to follow. What usually happens is that they get here and after the "honeymoon" period they start to disike the wildlife in their yards and start whining about how bad this or that farm's cows or pigs smell. Then they start to push for new ordinances that seeks to eliminate the "smell of money" but it ends up limiting the cattle owners income becuase now he has to invest in fumigation concepts. there goes his profits and/or his processing abilities. Suddenly one day you decide you don't like the 80 miles drive into the metro (that is what it is from here), or the gas price goes up [and you lose your "profit" margin (ironic isn't it)]. Now you're scrambling back to the city to be closer to work and we are left the blight of vacant homes, less than productive farms, and urban issues we didn't have to start with. If you are coming to be a part of something bigger than yourself and are willing to assimilate to your surroundings, then by all means come! If you are someone who whines because the rural isn't like the urban (duh?!), then stay in the city. By the way, most homes have a down required, don't be fooled! Leave the RDA loans fo our young people who need a help geting started. Beside, the RDA loans ere meant to keep rural people in the country, not to encourage urbanites to descend on the rural towns and countrysides. Let's not repeat the great buffalo hunts of the 1860's.
This means people have for gotten the Obama speech about how people in rural areas use up more natural resources and fuel causing high prices for food delivery and living. I do not remember his exact words but basically he stated people who live rural area's should pay higher tax's. This would not supprize me in years to come.