It’s an exciting time to be a homebuyer in America. Rising rental costs and low mortgage rates have generated interest in permanent housing. Mortgages have never been more affordable and with countless resources available, homebuyers are now able to educate themselves on their options like never before.
Low-downpayment mortgages are currently the most sought after on the market. Low downpayments give buyers more financial freedom without the obligation to put thousands down for the purchase of a new home. FHA requires 3.5% down, and there are even 97% conventional programs emerging that require just 3% down which is a big break from the formerly required 5%-20%. But it’s surprisingly little-known that there is a zero-downpayment mortgage option available to qualified applicants: the USDA Rural Development loan.
The Rural Development loan may not get as much exposure because it has only been active for around 20 years and it is only offered through USDA-approved lenders. But lenders who do offer the Rural Development loan can confidently loan to qualified borrowers with the promise that the mortgages are guaranteed by the USDA.
Qualified buyers will earn incomes that fall in a USDA-approved range—typically low- to modest-incomes. The Rural Development loan is perfect for first-time buyers who haven’t saved up for a large downpayment or who haven’t owned and sold a home to have equity for a downpayment. Income restrictions keep the loan accessible for middle-class workers who really need help purchasing a new home. The Rural Development loan came to be as a result of the USDA promoting the movement to strengthen rural economies.
Rural Development loans are only valid for homes in rural-approved areas. The USDA recognizes the economic potential of dwindling rural communities and undeveloped terrain in the U.S. This is why they are committed to assisting people who want to reside in and help grow these potentially prosperous areas. Building up neighborhoods will generate more revenue and the need for more resources, consequently boosting the overall market. The homes eligible for purchase with the Rural Development loan can be new constructions in up-and-coming neighborhoods, existing homes, or even foreclosures. There is no purchase price limit. The term “rural” shouldn’t be discouraging; almost 97% of the U.S. falls in a rural-approved region. Homes in suburbs or exurbs are often eligible for the Rural Development loan.
The Rural Development loan has a leg-up on the competition with zero required downpayments, but it is overall more affordable than most other mortgage programs. Closing costs than are mandatory for loans in every program, but they can be financed into a Rural Development loan. So, instead of paying up to 3% of the purchase price out of pocket at closing, buyers can bundle those costs in with their mortgage payment. This is the same for the mortgage guarantee fee which is a small fee paid by the borrower to protect the lender against mortgage defaults. Instead of paying 1% up front, buyers’ fees are rolled into the loan price. With low rates and even lower guarantee fees, Rural Development mortgage payments are usually hundreds of dollars less than other loans with the same purchase prices.