Zero Down USDA Home Loans and How They Work

Coming up with a down payment is usually one of the biggest obstacles for new homebuyers but with the inclusion of the USDA loan, many first-time homebuyers can purchase a property in rule areas with zero down. Here’s how they work.

USDA loan is a mortgage backed by the US Department of Agriculture as part of rural development. This is a guaranteed housing loan program available to homebuyers with a low to average income for a particular area. These loans offer 100% financing with reduced mortgage insurance premiums and typically feature below market rates. This is a great option for people who never thought they could be homeowners.

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This loan is for eligible suburban and rural homebuyers and is sometimes referred to as Section 502 loans referencing section 502(h) of the housing act of 1949. 97% of the geographic United States area is eligible for USDA loan. And buyers can finance up to 100% of the purchase of their home and have better than average mortgage rates because the USDA rates are discounted as compared to rates with other low down payment loans. The repayment schedule does not feature a balloon or any APR surprises but there are differences with the USDA loan to other types of loans. While you don’t have to make a down payment you are required to take a fixed rate loan, this could be good or bad depending on the current rates. These loans can be used by first-time buyers and repeat homebuyers and homeowner counseling is not required.

Features of the USDA loan:

USDA loans require mortgage insurance. However, these fees are both upfront and feature lower monthly fees, making it more attractive than an FHA loan. These fees and mortgage insurance is added to the loan balance so you pay it off gradually with each mortgage payment.

Unlike FHA and conventional loans, USDA home loans are guaranteed by a government agency and they are more protected against loss with lower risk.

USDA loan rates are often lower than conventional rates.

USDA loans are all eligible for refinancing.

The loan is designed for less densely populated parts of the country. They will typically not finance a home in a city or in larger metro areas. The home must be located in a rural area, however, the definition is somewhat liberal and small towns typically meet these requirements.

There is no maximum loan size for the USDA loan. It’s only limited to your household debt to income ratio. Most of these limit the ratios to 41% unless the borrower has a credit score over 660.

Closing costs vary by lender and location and can be gifted to the borrower. Sellers can also pay buyer closing costs.

The USDA loan must be for primary residences only and not for a vacation home or for investment property.

USDA loans are perfect for the self-employed and can use the bank statement or federal tax return proof of income for verification.

The loan can be used for new construction homes and it can even be used to make repairs and improvements to an existing home.

If the USDA home loan sounds like an attractive option, feel free to give us a call at any time. We can run the numbers, check your eligibility, and offer some of the best rates in Middlesex County New Jersey

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