The Federal Housing Administration (FHA) loan has been widely popular due to its lower down payment of 3.5% which, for many buyers, is more attractive than the 10% or 20% down payments required of other mortgage loan programs. But there is an even better option for potential homebuyers: 0% down with a United States Department of Agriculture (USDA) loan. Thousands of Americans have been able to purchase new, existing, and foreclosed homes with no money down. The USDA loan is government-backed and has provided down payment assistance to thousands of people nationwide. It is tailored to lower-income residents, but many households with multiple family members still qualify. The income guidelines are based on the desired geographical area and number of people in a household. The USDA loan is only valid on residences in designated rural development areas, but these areas are often small communities of less than 35,000 residents and on the outskirts of larger cities. Many people are able to purchase a home within a rural area and still easily commute to nearby metropolitan areas. The USDA loan doesn’t have a maximum purchase price, so buyers can purchase any home in a qualifying area, as long as they meet all other requirements and plan to occupy it as their primary residence.
The FHA loan is appealing to buyers who want a lower down payment, but the credit requirements are much more stringent than USDA’s. With FHA, a borrower’s credit score must be above a 640 with other conditions like specific tradeline duration and debt-to-income limits making it more difficult to qualify. USDA loans only require a credit score of 620, so borrowers with negative histories on their credit reports can still get a loan. Foreclosures and bankruptcies are even forgiven after 3 years. Borrowers with no credit score can have up to three co-borrowers on their loan if at least one borrower meets minimum credit requirements. The most important qualifications for a USDA loan are consistent employment for a 2-year period and two positive, active tradelines on their credit report for 12 consecutive months. If a borrower doesn’t have traditional tradelines, alternative tradelines such as utilities can be considered, which isn’t allowed with other loan programs.
The USDA loan is the best loan option for those who want as little up-front costs as possible. FHA loans are more affordable than many other mortgage loan programs, but the USDA loan is 100% financed, so borrowers owe no money down. The USDA loan also allows buyers’ closing costs to be financed into the purchase price, so they can close on their homes with no money out of pocket. USDA loans give thousands of people the opportunity to buy and afford their own homes, despite limited incomes and negative past credit histories.