If you want to buy a home in a designated rural area, and you meet income guidelines, you may be able to get a mortgage with no down payment through the USDA program.
A USDA home loan, also known as a Rural Development Loan, is a government-issued mortgage that allows you to buy a home with no money down. Qualified buyers can receive 100% financing, with closing costs financed into the mortgage or paid by the seller. USDA loans typically have very competitive interest rates, and the mortgages always have a fixed rate.
The USDA program was created in 1991 to boost homeownership in rural areas. The program allows for the purchase, refinance, renovation and repair of a home. Many city dwellers may take advantage of a USDA loan as an incentive to relocate.
USDA loans can be somewhat tricky to qualify for, because not only must the borrower qualify, but the property must qualify as well.
Despite the advantages, a USDA loan is not for every borrower. The income requirements are capped based on median income in the area the home will be purchased. The home must also be located in an approved rural area, according to the USDA. This creates a small box for borrowers to fit into, although those who do meet the qualifications will enjoy a low fixed-rate loan with no down payment required.
There are two forms of USDA loans: a direct loan and a guaranteed loan. Each has unique eligibility requirements. A direct loan is made by the USDA, and it is designed for low-income borrowers with a household income that is less than 80% of the region's median. A guaranteed loan, on the other hand, is made by a third party (such as a bank) with a broader income range. Guaranteed loans require the borrower's household income is less than 115% of the region's median.