USDA Loans: Buying a Home with Zero Percent Down Payment
Yes, there is a loan program where you don’t have to put anything down for a down payment. However, there are limits to who can use a USDA program and where you can use a USDA loan. So, we will dive into what exactly a USDA loan is, the types of USDA loans you should know about, and how you could qualify for one.
What is a USDA Loan?
USDA loan is a mortgage program that helps moderate to low-income homebuyers purchase properties on the market. However, the properties they hope to buy have to be a rural or USDA-eligible area. Luckily, for CSRA residents, there are various areas in the CSRA that are USDA-eligible. There is no maximum listing price with a USDA loan, no PM, and no acreage limit (though the lot size has to be equivalent to other lot sizes in the area). You can not use this loan for income-producing buildings or lands. As we mentioned previously, you don’t need a down payment for this loan, but you need to keep in mind that you are still in charge of closing costs, home inspection fees, and earnest money deposit. So have those funds ready.
No matter what kind of USDA loan you get, you have to get a home appraisal done.
Two Types of USDA Loans You Can Use to Purchase a House
Single Family Housing Direct Home Loans (Direct Loans)
With this type of USDA loan, you won’t be working with a lender at all. Instead, you’ll be going to the USDA themselves. With this loan, there is no minimum credit score, but you’ll generally want to keep your credit score in the mid to high 500s to get a better chance of approval. To qualify for this loan, you have to be a low-income earner. For a direct loan, the requirement is that you be without decent, safe housing, and you cannot get funding from other loan types. The rates are usually lower than the market rates for USDA direct loans. For example, in February 2023, the direct loan rates at 4.23% while the market rates were around 5%. With a direct loan, it take about 45-60 days to close the sale of a house.
Single Family Housing Guarantee
This is the USDA loan that’s more common for people to get. Unlike direct loans, you must go through a USDA lender to get this. Your living conditions can be acceptable, but your income can’t exceed 115% of the median household income in the area where you hope to buy a house. In Georgia, that limit (as of March 2023) is $110,850. For a family of five or move, that could cost $146,300. South Carolina’s average limit is lower and sits at $103,500 or for families of five people or more, $142,950. Usually, these loans take about 30 days to close the sale of a house.
What Do You Need to Qualify as a Borrower
You will need to meet a few bits of criteria to qualify as a USDA borrower. As we mentioned before, you can’t excceed 115% of the median household income in the area your new home is in. For a USDA guarantee loan, you will need a minimum credit score of 640. Your property must be a single-family dwelling. You’ll need two years’ worth of work history, and your monthly mortgage payments can’t exceed 29% of your monthly income. Your monthly debts can’t go beyond 41% of your monthly income. For both the direct and guarantee loans, you must be unable to qualify for a loan without PMI. In other words, if your lender or the USDA finds that you have enough cash reserves to make a 20% down payment on your house, you won’t qualify for either mortgage program.
You must be a US citizen or permanent resident to qualify for this loan.
How Do I Find Out If A Home I Look at Is USDA-Qualified?
Very good question, and luckily the USDA website can provide you with that answer. Their website has a tool that lets you know whether the area you’re looking at is qualified for their loans. If so, you’re in luck!
The Other USDA Loan: Home Repair Program
This loan is designed to help homeowners make repairs on their properties. However, it could also be used to upgrade certain aspects of the home. And if the USDA decides to award you grants, there is a fair chance you might not have to repay the loan. The borrower has to be the homeowner, occupy the house (can’t use it on a rental property), and have a household income lower than 50% of the local median income. The loan amount is also limited to $20,000.
USDA, a Great Tool for Certain Properties
USDA loans were designed to help homebuyers who couldn’t obtain financing from lenders. So, if you’re trying to find your own home and need the assistance of a federally backed loan, consider a USDA loan. In the Augusta-Aiken area, there are many neighborhoods where you can get one of these helpful mortgages. And if you’re unsure, never be afraid to ask your real estate agent to help you find USDA-qualifying properties in the CSRA.