Author: cwatters@primeres.com

The USDA loan is the best choice for buyers who are seeking a zero downpayment mortgage option. It is the only zero downpayment program available to people who haven’t served in the military. The loan’s popularity is growing, especially among lower-credit and first-time buyers, because of the lenient financial and credit guidelines.

As compared to FHA and Conventional loans that require 3.5% and 3% down, respectively, the USDA loan is much more affordable. FHA and Conventional loans ask for a percentage of the total purchase price up front before the loan can close. This is excluding the other fees and costs required to complete the loans. The zero-down USDA program requires no money out of pocket.

Buyers don’t pay higher rates as a result of not paying down payments. In fact, USDA loans’ rates are similar or lower than FHA and Conventional loans. Because the Zero-down USDA loan is backed by the United States Department of Agriculture, the upfront costs are minimal and the rates are incomparably low. Mortgage insurance is also inexpensive for the USDA loan. On average, it costs $29 a month per $100,000 financed. For the same loan amount, FHA MI costs around $70 and Conventional MI is around $80 per month. The USDA loan does have a small upfront fee, but it is wrapped into the principal instead of paid at closing. FHA offers a similar model, except their fee is almost a point higher than USDA, contributing to the higher monthly payments. Despite having zero downpayment and, consequently, a slightly higher loan amount for the same purchase price, USDA’s monthly payments are still lower than FHA and Conventional.

Zero-down USDA loans only require a 620 credit score. Requirements are lenient compared to other loan programs, especially since there is no downpayment. USDA loans consider untraditional tradelines in the absence of traditional debts that would be reported to the bureaus. Also, the wait time to get a home loan for borrowers that have been discharged from bankruptcies and foreclosures is drastically reduced.

Income limits for Zero-down USDA loans are set to ensure the program is being used by people who need assistance with buying a house. To be eligible, a borrower’s income must not exceed limits. These guidelines vary by region and are very generous; the borrower can earn up to 115% of the region’s average income and qualify. Large households can make even more and still be eligible.

Zero-down USDA loans are only available to homes in rural areas as determined by the government. This helps rural communities grow and thrive. Rural areas actually include 97% of U.S. land, so finding an eligible home isn’t challenging. There are no maximum purchase price limit for homes, but borrowers must reside in the home as their primary residence. The zero-down USDA loan is not valid on manufactured or mobile homes.

If you’re a potential first-time homebuyer, you probably have a lot of questions about which loan program is best for you. There are many on the market, all with different advantages, depending on what’s important to you and your family. If you’re a first-time homebuyer it’s likely you don’t have a large savings built up. Maybe you just graduated from college or got married and are ready to start a family. Maybe you’ve been renting and are ready to invest your money in something concrete. There is a great loan option popular among first-time homebuyers from any scenario: the RD Home Loan. This loan is guaranteed by the USDA and it assists middle-class or rural citizens with purchasing a home and maintaining successful homeownership for the duration of the loan. Unlike competing programs like Conventional and FHA loans, the RD Home Loan doesn’t require a down payment. The USDA began investing in this program in the early 1990s so Americans could afford homes with little initial cost.

The RD Home Loan isn’t just down payment-free, but it can be completely cost-free, meaning you can close on a new home having paid no money out of pocket. The RD Home Loan has a guarantee fee that protects the investor who provides the loan. The upfront portion of the guarantee fee is rolled into your mortgage and paid out through the amortization of the loan. The guarantee fee is required since there is no down payment—normally any loan program with less than 20% down requires some sort of mortgage insurance—and the RD guarantee fees are some of the lowest available. There are always closing costs that accompany a mortgage loan, for both the seller and the buyer. For RD Home Loans, the seller can cover up to 6% of the purchase price in closing costs. Closing costs are normally 3% or less of the total purchase price. This means instead of coming up with closing costs out of your pocket, they can be financed into the purchase price of your home.

First-time homebuyers don’t often have extensive credit histories. The RD Home Loan is perfect for these candidates because the credit requirements are much more lenient than those of other loan programs. For example, FHA requires borrowers to have a credit score of 640 and above, but the RD Home Loan only requires above a 620. As long as you have two lines of credit active on your report, you may qualify. You should also have no judgements or delinquent federal debt like student loans or child support. For borrowers who have an even more limited history, alternative lines of credit may be considered.

The RD Home Loan is a great option for first-time homebuyers who may have just entered the workforce or who earn low to moderate wages. There are income restrictions for this loan because the USDA intended to assist lower income buyers. Since the income calculations factor in household members, many Americans qualify, depending on where they live.

The USDA-guaranteed loan is one of the government’s least-known mortgage programs which is surprising because it has more advantages than most other government mortgage loan options. It is particularly beneficial to rural and middle-class Americans because the loan is only applicable to homes in rural areas and there are income guidelines in place that specifically advantage middle-class citizens. The USDA loan requires $0 down, so borrowers don’t have to make any initial down payments or pay closing fees out of pocket.

To qualify for a USDA-guaranteed loan, you must meet income guidelines. The USDA loan is structured so middle-class or lower income Americans have access to low, affordable mortgage rates. If your income exceeds their guidelines, you will not qualify for 100% financing, but there are still low-cost loans available to you such as the FHA loan which only requires 3.5% down. Income is calculated by the number of people in your household and where you live in the U.S. Income thresholds vary across the country due to more densely populated areas or higher-income regions impacting the per capita wages.

If your income qualifies, you must choose a home in a USDA-approved rural area. Nearly 97% of the nation resides in a rural area as designated by USDA, so finding an eligible property isn’t difficult. USDA actually has the option to search for authorized homes on its website. You simply enter the address and the map will show whether or not it’s eligible. The USDA-guaranteed loan can be used for existing homes, new construction, or foreclosed houses and there is no maximum purchase price limit. Homes are subject to an appraisal and if the home doesn’t pass a home inspection, it may not qualify for the USDA-guaranteed loan.

Your credit must meet USDA’s standards to qualify for the USDA-guaranteed loan. These standards, however, are lower than comparable programs. For instance, FHA requires borrowers to have a FICO score of at least 640, but USDA requires a 620 or above. The USDA-guaranteed loan is also less strict on credit history. Most loan programs require a 7-year wait after discharge of a foreclosure, but USDA only requires 3 years. Bankruptcies are also overlooked after 2 years. To be preapproved, you do need at least 2 active lines of credit that have been maintained for 12 months. You can’t have any outstanding federal debts or judgements on record, and no new collections can have been reported over the previous year. Your debt-to-income ratio must also pass guidelines, usually not to exceed 41% of your monthly income with your new mortgage factored in to your payments.

The USDA-guaranteed loan has many benefits to potential homebuyers. It is low-cost with lenient credit and income guidelines, so many people may qualify who wouldn’t be approved by other loan programs. The USDA is helping to build the economy in rural regions while assisting Americans with dreams of homeownership.

USDA Refinances allow homeowners to lower rates, shorten loan terms, or take out cash from the home’s equity. As with USDA loans, USDA Refinances are 100% financing. The one-time guarantee fee may be financed into the loan and paid out over small monthly payments. There are no limits on loan amount and single family, condos, and town homes are all eligible properties. Home inspections and appraisals may not be required in some cases. The minimum credit score accepted is 620 and owners must not have outstanding or delinquent federal debt, any collections reported within the previous year, or late mortgage payments.

Currently, mortgage rates are the lowest they’ve been in years, which means mortgages haven’t been this affordable in decades. The USDA made changes in 2016 that make it easier and quicker for homeowners to refinance their loans. If the home has been financed for longer than 12 months, income verification and appraisals aren’t needed to refinance for a 30-year term. There may not be a need to pull a new credit report. The refinance option is subject to the same underwriting process as a USDA loan, and only qualified homeowners are eligible.

Over 10,000 homeowners have already refinanced their USDA loans, saving them hundreds of dollars a month. The USDA is committed to providing middle-class Americans with the opportunity to own affordable homes and provide secure, safe housing for their families. There is no penalty for refinancing a USDA loan; in fact, USDA wants to ensure homeowners are getting the best rates available on their mortgages. The rates are reevaluated yearly in October, but homeowners have the option to refinance their USDA loans at any time. The monthly mortgage payment must be reduced by at least $50.00 in order to refinance the mortgage, but the average savings is over $150.00 a month.

As with USDA loans, there are no costs out of pocket for the homeowner. USDA Refinances permit closing costs to be wrapped into the transaction and these costs are generally less than at the time of purchase. The USDA guarantee fee may also be rolled into the loan. If the home is no longer in a USDA rural area—which may happen, especially if the home is on the outskirts of a large city—it may still be refinanced as a USDA loan.

The USDA’s Refinance option lets homeowners take advantage of low interest rates and keeps mortgages affordable. This brings more capital to rural communities and encourages growth in middle-class America. Rural homeowners may have lost equity in their home due to market adjustments, but the refinance option helps these homeowners lower their costs, regardless of negative equity or loan to value.

Accredited lenders offer the RD Rural Housing loan to qualified applicants searching for a new home. This loan program has become one of the most popular mortgage choices because it’s affordable and available to almost all buyers. The RD Rural Housing loan is relatively new, having been developed in the 1990s by the USDA. The primary purpose is to provide low- to moderate- income individuals and families with affordable housing and down payment assistance.

The RD Rural Housing loan is available to applicants residing or wishing to move to rural areas. These areas can include open country, small cities and towns of fewer than 35,000 residents, and communities on the outskirts of major cities. There is no purchase price limit for homes under the RD Rural Housing loan, but there are qualifications for borrowers:

• They must meet income eligibility. Since the RD Rural Housing loan was developed with intentions of helping lower income families purchase a home, there are limits to how much they earn per year. The limits are determined by the per capita income in a given geographical area.
• They must be a U.S. citizen, Qualified Alien, or Non-citizen National and possess proper paperwork.
• They need to prove financial ability to afford the home in question.
• They must meet credit standards, which are lenient compared to comparable loan programs.
• They can’t have any outstanding federal debt, such as delinquent student loans, or be suspended from federal programs.
• They should intend to occupy the home as their primary residence.

RD Rural Housing standards are much easier to meet than comparable loan programs. The credit requirements approve scores of 620, which is at least 20 points higher than FHA. It also only requires 2 current lines of credit that have been active for 12 months. Applicants can be approved for the RD Rural Housing loan within 3 years of being discharged from a bankruptcy or foreclosure, whereas they would have to wait at least 7 years to get an FHA loan.

RD Rural Housing is 100% financed, so there is no down payment from the borrower. The only other loan that is down payment-free is the VA loan and it is only available to Veterans. If an applicant meets all the requirements and want to purchase a home in a rural area, they can be approved for the RD Rural Housing loan. Other loan programs put a limit on the amount of closing costs and fees that can be covered by the seller, but there is no limit with this loan. You can close on a new home with no money out of pocket. The RD Rural Housing loan doesn’t take any longer to process than other loan programs.

The Rural Loan is changing the way Americans buy homes. To qualify for a mortgage in the past, large down payments were required along with specific high credit standards and substantial assets. It could take years for someone to save enough to cover the initial costs of buying a home. Now there are mortgage programs that require as little as 3% down, but the Rural Loan is the only mortgage program that requires $0 down, other than the VA loan which is only available to veterans. Eliminating down payments makes it possible for financially capable Americans to afford homes of their own without saving for a down payment.

Unlike other mortgage programs, the Rural Loan permits a buyer’s closing costs and fees to be wrapped into the transaction and financed throughout the life of the loan. Some other programs will allow a seller to pay a portion of the buyer’s closing costs, but the Rural Loan has no limit on the percentage covered by the seller.

The Rural Loan is backed by the USDA which makes having low mortgage insurance possible. Since the Rural Loans are no money down mortgages, they require mortgage insurance which protects investors if borrowers default on their payments. The upfront mortgage insurance fee for a Rural Loan can also be wrapped into the mortgage and paid in small amounts through your monthly mortgage payment. The rates are reevaluated every year.

Mortgage rates are low for the Rural Loan because of its government guarantee. The mortgage rates are federally-monitored and updated frequently. The rate you close with will be the lowest possible rate available at that time. You have the option to refinance once you have owned your home for 12 months.

The Rural Loan will approve credit scores above a 620. This is low in comparison to FHA and Conventional programs that won’t approve a score under 640. It’s difficult to have perfect credit with rising healthcare costs, an economy recovering from the recession, and so many first-time homebuyers carrying student loan debt. The Rural Loan’s guidelines overlook past credit flaws as long as your current report is positive and no accounts have been sent to collections within the previous 12 months. The Rural Loan will consider other lines of credit for your eligibility if you don’t have enough adequate traditional tradelines. These may include rent, utilities, and phone services.

Low income isn’t a disqualifying factor for the Rural Loan. In fact, this loan program was designed to provide low income buyers with 100% financing. There are income restrictions that are based on the average per capita income for a given geographical area and you won’t be eligible if you exceed the limits. However, many people are surprised to find their income qualifies them for the loan, especially since the income restrictions factor in the number of household members.

With so many loan options available to potential Arkansas homebuyers, it can be difficult to choose the best one for your financial situation. You can find mortgages advertising low down payments, fixed and adjustable rates, low or no mortgage insurance, and a number of other appealing features. You should consider your options and decide what is important to you and your family before making a decision. There is one mortgage program, however, that is a great option for almost all Arkansans: the RD Loan.

The RD Loan isn’t widely known because it only became available in the 1990s. The USDA wanted to create a loan program that would allow low- and moderate-incomed families the opportunity to afford housing in rural areas of the country. Rural land doesn’t just include farms and open country, though. The majority of the U.S. falls into a “rural” area—97%, in fact. Arkansas, being a land-rich state by nature, is largely rural which is great for potential homebuyers because the RD Loan is only valid on homes in designated rural areas. The USDA has a search engine on its website that will determine whether or not your desired home is in an eligible area.

Arkansas stands to gain from the RD Loan because assisting families with purchasing a home in rural areas helps strengthen and grow our state’s economy. Rural communities often suffer from high taxes, few job opportunities, and depleting populations. Many factories have closed or relocated and, as a result, families can no longer afford to live in rural communities. The RD Loan requires no down payment for homes in eligible areas, so families are incentivized to relocate or remain in rural communities with no obligation for money out of pocket.  The RD Loan is especially appealing to first-time homebuyers who usually don’t have a large savings to put toward the purchase of a home. Any savings they do have would be better spent on housing expenses once they’ve secured a loan.

Arkansas’ per capita income is less than the national average which is beneficial to anyone who is interested in the RD Loan because their income is more likely to qualify. The RD Loan is targeted toward low- to moderate-income households, so even if your income is moderate by Arkansas standards, it may fall within the RD Loan’s guidelines. The number of people in your household is taken into consideration when evaluating income qualifications. The RD Loan also allows additional co-borrowers on the loan, so if you have multiple working members in your household, they may be used for additional income.

Among all the appealing mortgage loan options on the market, the RD Loan is a great option for Arkansans. It helps families to secure affordable housing and promotes the growth of our economy at the same time. Rural communities will thrive with growing populations, adding countless jobs to our state and families will be secure in homes they will live in for many years.

Fixed-rate USDA loans are $0 down, 15- or 30-year mortgages that are intended to help our rural communities grow and thrive. These loans are only eligible on homes in USDA-defined rural areas which can be anywhere from open country to the outskirts of major cities. Around 97% of the entire country falls into a rural-defined area, so finding a qualifying home isn’t difficult. The mortgage rates on these loans are federally-mandated and are based on the going prices of bonds. At the time of closing, a loan will be locked at the lowest going rate.

Fixed-rate means the mortgage rate will not increase or decrease over the amortization of the loan. Mortgage rates adjust multiple times every day, so buyers with a fixed-rate USDA loan can feel secure knowing their rate will not change. Past loans originated during weaker economies were sold at higher, adjustable rates with the promise of a potential decrease over time. Although those rates might have seen a decrease after the economy recovered from the recession, they are just as likely to see an increase over time. It is out of the buyers’ control. With current rates lower than they have been in years, choosing a fixed-rate program is the wisest choice. Because Fixed-rate USDA loans are guaranteed by the government, the mortgage rate is usually lower than with other loan programs, giving buyers even more confidence in their decision.

If rates do decrease, buyers with a Fixed-rate USDA loan have the option to refinance after they’ve owned their home for 12 months. There is no penalty for refinancing, and in some cases an appraisal and home inspection may not be required. As with original Fixed-rate USDA loans, the closing costs may be financed into the loan. Many homeowners do refinances to lower their rates and change the terms of their loans, but some refinance their home to take out cash for home improvements or to pay down other debt. The guidelines for cash-out refinances are the same as for no cash-out refinances, although that is a better option if you have owned your home for several years because you will have more equity invested.

Getting preapproved for a Fixed-rate USDA loan is easy. Only mortgage lenders approved by USDA can offer the Fixed-rate USDA loan. Your credit score must be at least 620, which is 20 points lower than what is required from most other loan programs. You need to have 2 years of work history and be able to prove that you can afford a monthly mortgage payment. You can’t have any outstanding federal debt or have an open judgement against you. Finally, the home you choose must be in a rural-defined area. The Fixed-rate USDA loan is the best option if you want the security of a low, fixed rate, the freedom of a down payment, and the ability to change the terms of your loan with no penalties.

• Are only houses in the country eligible for the Rural Home Loan?No, actually the Rural Home Loan is valid on 97% of the country. “Rural” normally implies areas removed from major cities, but Rural Home Loan-eligible areas often include suburban communities outside major cities. A licensed real estate agent or a mortgage loan officer can verify the eligibility of a particular home.

 

• Will only families considered low-income qualify?

Not necessarily. Although the Rural Home Loan was created to help lower income families afford homes, the income limits often include average wages. The income guidelines are set based on the average per capita income in a given geographical area, considering the number of household members. Many people are surprised to find they are within the limits.

 

• Do you have to be a first-time homebuyer to get this loan?No, even though the Rural Home Loan gives first-time homebuyers a break from the typical costs associated with buying a home, people who have previously owned homes can take advantage, as well. If you sell a home and wish to purchase another in a rural area, instead of using equity from the sale as a down payment, you can save it for home renovation or other moving costs.

 

• Does the Rural Home Loan require any money down?

No, this loan requires $0 down. Where comparable loan programs like FHA ask for at least 3.5% down, the Rural Home Loan is 100% financed. It even has the option to finance closing costs and other fees into the loan. This means instead of owning a large sum of cash at the closing table, you can make small monthly payments each month toward the balance.

 

• Does your credit need to be excellent to be approved for the Rural Home Loan?

 

Unlike other loan programs that require credit scores above 640, the Rural Home Loan will accept credit scores as low as 620. This means if you have had prior foreclosures, bankruptcies, judgements, and collections you may still qualify for this loan. You must have at least two active, current lines of credit on your report with no debt turned over to collections within the previous 12 months. You must also have no outstanding federal debt or unsatisfied judgements.

 

• Does this loan take longer to close?

Despite the Rural Home Loan having more lenient guidelines, it doesn’t take any longer to close than other loan programs. The guidelines are government-mandated so determining a loan’s approval is easy for Underwriters. In typical cases, a loan will close within 30 days if all necessary documentation is provided when needed and no qualifying factors like income and debt change.

The USDA 0% down home loan might be the right loan for you if you make enough money to afford a monthly mortgage payment but you don’t have a savings account with necessary funds for 3% or more down. This is the only loan of its kind that is guaranteed by the U.S. Department of Agriculture so the loan is less risky for investors. The lower risk factor allows for lower rates and mortgage insurance, so your monthly mortgage payment will stay lower than comparable loan programs.

You may also want to consider the USDA 0% home loan if your credit score is under 640. USDA is one of the only loan programs that allows borrowers with credit scores as low as 620. The Underwriter will evaluate your credit and you will likely meet the requirements unless you have delinquent federal debt, more than one 30+ day late payment over the previous 12 months, an outstanding judgement, an account turned over to collections within the last 12 months, or a bankruptcy or foreclosure within the last 3 years. You will need to have 2 current lines of credit on your report that have been maintained over a 12-month period. Alternate forms of credit may be considered. These credit requirements are much more lenient than comparable loan programs.

The USDA 0% down home loan is a great option if you’re looking to purchase a home outside major city limits or in a rural community. The 0% down home loan is only valid on homes that are in USDA-determined rural areas. Around 97% of the U.S. falls within these areas, so finding an eligible home is easy. In fact, USDA’s website has a search option to help you determine whether or not a home is eligible. Also, this loan program has no limit on home price.

You can get the 0% down home loan if you’re a first-time homebuyer or if you’ve purchased a home in the past. As long as you meet all other criteria, you may be eligible for this home loan. Since the 0% home loan was created to assist lower-income families with buying a home, you will need to verify that your income doesn’t exceed USDA’s guidelines. They are determined by your geographical area and number of people in your household. If your income qualifies you for the 0% down home loan, you may want to choose this program over another not only because it requires 0% down, but also because the mandatory mortgage insurance is usually lower.

There are many reasons why a potential homebuyer should look into the USDA 0% down home loan. It saves you money up front and gives low-income families the opportunity to buy their own homes. People with flawed credit histories or limited credit are also not excluded, unlike with other loan programs. Mortgage insurance rates are low despite having no down payment, and it helps develop our rural communities.