No Money Down with a USDA Home Loan

usda-loansIf you have decent credit, a steady income and can’t find affordable housing, you may qualify for a home loan from the United States Department of Agriculture. There is one catch – you need to be willing to live in a rural area.

The USDA Rural Development home loan is ideal for very low to low income families in need of affordable housing. There is no down payment requirement and qualifying is a snap.

The department offers two types of home loans, a direct loan and a guaranteed loan. The latter is much like an FHA loan, where the government provides the lender with a guarantee of repayment should the borrower default on the loan. Both are zero down loans and they may be obtained to purchase, construct or repair a single-family home.

Income Requirements

Think of the USDA loan’s income requirements as opposite of a conventional loan. The latter requires borrowers to make a certain amount of income, or more, to qualify for the loan. The USDA, on the other hand, requires that borrowers’ incomes remain below a certain threshold. This threshold is the Area Median Income (AMI) and the government considers anyone that earns less than 50 percent of this figure “very low income” and borrowers that make between 50 and 80 percent of the AMI are “low income.” These borrowers are ideal for the USDA Direct loan program, where the government acts as the lender and servicer.

The USDA guaranteed loan is better suited to those borrowers that earn a bit more, up to 115 percent of the AMI. I can let you know what the current AMI is when you contact me.

Do I Need Excellent Credit?

The USDA wants to know that you can make your monthly mortgage payments and expects you to have a “reasonable” credit history. You will have an opportunity to explain any significant problems in your credit history and, at least with the direct loan, standards are rather lenient. The guaranteed home loan program comes with the same expectations with the exception that you will also need to qualify with a lender, so the standards are more stringent.

What is a Rural Location?

“Rural,” to the USDA means a town that’s population doesn’t exceed 20,000, located in either open country or rural towns.If you own a home within 50 miles of the one you hope to purchase, you won’t qualify for the loan.

Additional requirements include:

  • The house must be of modest design, size and price.
  • The home cannot have a swimming pool.
  • The home’s market value must be at or less than the loan limit set for the area.
  • The home must meet certain specific building codes set forth by the USDA.
  • Manufactured homes must be installed on a permanent foundation and meet U.S. Department of Housing and Urban Development (HUD) standards.

Finally, borrowers must be U.S. citizens or legally admitted immigrants and be able to prove that they tried to obtain a mortgage elsewhere but were denied and they are without adequate housing.

Before making assumptions as to whether or not you qualify for a zero down USDA loan, you owe it to yourself to find out for sure. The government provides payment subsidies and other incentives to help get you into a home and to make the monthly payments.