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.