USDA Home Loan: Little-Known Program Best Chance For Some Homebuyers
For suburban and rural residents with low incomes and little or no savings, homeownership is an impossible dream — or so they thought.
A loan with zero down, a low interest rate, no maximum purchase price and flexible credit guidelines may sound too good to be true. But it is true, and it’s a USDA Rural Development home loan.
USDA Home Loans: Ask For Them By Name
The government has been offering these mortgages through the U.S. Department of Agriculture since 1991 to help people buy homes in less-populated areas.
Not everyone is eligible — there are income restrictions, and the property must be located in designated “rural” areas. Each state has a USDA map showing what areas are eligible for the loans.
“You’d be surprised how many lenders don’t even know about this loan,” says Christian Durland, senior mortgage loan officer at CMG Financial in Englewood, Colorado. “But it’s really not any different than any other loan.”
Those who have been lucky enough to get such a loan are thrilled. Here are a few examples of buyers who were able to obtain a USDA home loan and achieve homeownership:
USDA Home Loan $100 Less Than Monthly Rent
Tica Looper, a loan officer with National Residential Mortgage in Reno, Nevada, wanted to help a young customer buy her first home. The hard-working woman had almost nothing for a down payment — just $1,000 for earnest money.
“But she managed with a USDA loan to buy a cute house in Fallon, Nevada, with zero down,” says Looper.
The borrower worked two jobs and just wanted to stop renting. She found the perfect home for $123,000 with three bedrooms, two bathrooms and nearly 1,200 square feet.
Better Than FHA?
She was able to get a 30-year loan with a 3.75 percent interest rate, and only pays $764 a month, including taxes, insurance and the annual mortgage insurance premium. She was paying $850 for rent.
“The next best option for her was an with 3.5 percent down, and she could have gotten a grant for the down payment,” Looper says.
“However, those loans have higher interest rates, and there are more fees along with higher mortgage insurance.”
This borrower was able to have the seller pay for $2,500 of her closing costs, and the rest was rolled into her loan.
Looper says that the USDA’s mortgage insurance costs got lower in October. They went down from 2.75 to 1.0 percent — and are usually just added to the loan amount.
The USDA also lowered the monthly insurance fee from .5 percent to .35 percent. That made this home even more affordable for Tica’s client.
“Another good thing about USDA loans is that you don’t have to be a first time homebuyer to get one. You can sell a house and buy another house with a USDA loan,” she says.
On The Edge Of The Big City
Christian Durland helped a couple purchase a home in Bailey, Colorado — just outside (expensive) metro Denver. Parts of that area are USDA loan eligible.
“These folks were referred to me, and we were talking about doing a conventional loan by putting three percent down or an FHA with 3.5 percent down,” he says.
“When I told them about the USDA loan, they talked to their Realtor and revised their search of where they wanted to buy a house. Their whole attitude and energy changed.”
Keeping Emergency Savings
The zero percent down payment made them excited about being able to buy a house and hang onto their savings. They bought a $310,000 home. The only other option for a loan was an FHA one, but the zero down payment saved them $11,000.
“The wife of that couple still refers me business because of that,” Durland says. “My personal belief is that the difference in putting down zero or three percent on a loan, or even five percent instead of 20 percent down isn’t that much of a difference per month.”
But by keeping that money in the bank for other purposes or for emergencies can give a homeowner much more security.
A USDA loan is perfect for people who want to be close to a city, but don’t want or can’t afford the city lights. Many people don’t realize that USDA is available in big city areas, in certain tracts or on the outskirts, he says.
“You do have to have certain income eligibilities, and the home has to be in an eligible area. USDA is less liberal than the FHA loan, and it is a slightly harder loan to get than FHA,” he says. “But if lenders give them the choice, it can be huge for the borrowers.”
Single Mom In Austin Finds Dream Possible
The energy industry has been pushing rental rates up and reducing the number of affordable homes in the Austin, Texas, area. A single mom came to Dudley Snyder, branch manager at Supreme Lending, for help.
“She was in dire need of a program that could provide the square footage and price to accommodate her situation. The particular community she lived in just did not offer much in the way of rental properties to accommodate herself and her three children,” he says.
She fit the profile of many USDA borrowers in Texas who have jobs and the credit rating to qualify for a home. They just don’t have the assets for down payment and closing costs.
“We were able to get her financing for her dream home, and along with the Mortgage Credit Certificate, she actually reduced her monthly housing expense over what she was paying in rent,” Snyder says.
“The USDA loan doesn’t fit every situation for prospective buyers, but it does address home affordability in the smaller markets across this country, which makes it a huge success in our books.”
What Are Today’s USDA Mortgage Rates?
USDA home loan rates are often lower than those of other programs. Find out how they compare with FHA ad conventional programs by contacting USDA mortgage lenders.