In this article
Key Takeaways:
- USDA loans offer 100% financing with no down payment.
- Mortgage expenses can be rolled into the value of the loan, even with zero down.
- A standard loan limit is $398,000, with some as high as $970,800.
- Many single-family homes in small towns qualify, and some even have pools.
- Millions of Americans across the country used this program to own a home.
With 80% of people under 30 thinking the American dream is a thing of the past, home ownership has never felt further from reality for young people.
It’s no secret that home prices have soared and income has stagnated when accounting for inflation. And for many people, being a first time homebuyer belongs to the category of a delusional fever dream. Is it really out of reach? Maybe not.
The realities of home ownership can’t be dismissed. Owning a home is the primary means of building net worth. Someone who never owns a home has a more difficult road to financial freedom in retirement. This is why a program like the U.S. Department of Agriculture Loan Program is worth a look for people ready to change their lives.
What is a USDA Loan?
USDA loans provide first-time homebuyers or repeat buyers opportunities to get 100% loan-to-value ratio (fully funded) mortgage. No down payment is required if the buyer meets the qualifying criteria. Though they are often misunderstood as being only for rural properties, in reality, many suburban homes also qualify.
A USDA loan helps buyers save significantly upfront, making homeownership more attainable and changing their financial futures.
There are two types to be aware of: Single Family Housing Guaranteed and Single Family Housing Direct. The primary difference is that direct loans are geared toward lower income households while guaranteed loans are geared toward lower and middle income.
The direct loan variant is processed through the Rural Development Service Center, while the guaranteed version is processed through a bank or mortgage company like a typical mortgage. The direct home loan program also allows for more of the upfront costs to be rolled into the loan if the loan exceeds the home value.
See what you can afford. Start Here! (Dec 16th, 2024)3 Requirements to Qualify for 0% Down
The three requirements to qualify for 0% down with USDA loans are as follows:
Income must be below 115% of the median household income in the county where the property is located. According to the United States Census Bureau, the median income of counties across the U.S. ranges from $14,525 to $170,463. If we take 115% of those numbers, we end up with a range between $16,704 and $196,032.
However, it’s more helpful to eliminate the extremes. The vast majority of counties will fall between $30,000 and $100,000.
Another requirement is that they must occupy the home as their primary residence. This requirement is to prevent people from buying properties under more favorable loan terms and using them as rental properties. A typical in-home business is allowed, though. They must also be a U.S. Citizen, U.S. non-citizen national, or qualified alien.
Further, even though this loan doesn’t technically require a minimum score, lenders will still want applicants to meet credit score requirements, usually around 640.
It is important to demonstrate stable income and the ability and willingness to make regular payments when seeking a home loan. A credit score is a good proxy for all of those elements, which is why companies use it. They’ll also look at debt-to-income ratio which must be less than 41%.
See your custom rates in less than a minute. Start Here! (Dec 16th, 2024)The Importance of 2025 Loan Limits
The 2025 loan limits are essential for buyers to understand, especially in high-cost areas. A typical area loan limit is $398,600, with high-cost areas seeing as much as $970,800. Buyers should be aware of these loan limits based on their county to see how it impacts their loan eligibility.
You may qualify for a bigger loan in a more expensive ZIP Code. For instance, regions such as Napa, CA, and King County, WA, have different limits, so buyers should check these details when considering their loan options. Those values can be found using the USDA’s official map. Clicking on a state takes you straight to its list of eligible communities.
Another benefit of USDA loans is that private mortgage insurance (PMI) is not required. However, there is still a fee structure. And it’s slightly different since the United States federal government sponsors these loans. They require an upfront 1% fee when the loan is originated and an annual 0.35% fee to service the loan.
Origination fees, title insurance, appraisals, etc. apply like a conventional mortgage. In fact, the process is very similar to a conventional loan overall. Many of those costs can be rolled into the loan.
See all your options. Start Here! (Dec 16th, 2024)The Hidden Gem of Mortgage Loans
Getting a USDA loan doesn’t require buying farmland in the middle of nowhere. Of course, major metropolitan areas and small cities (population greater than 50,000) are ineligible. However, there are a few criteria that make several small towns eligible. But one thing to remember is that the majority of these loans are for single-family homes.
Areas with a population of less than 10,000 are automatically eligible. Towns between 10,001 and 20,000 cannot be adjacent to a major metropolitan area. And towns between 20,001 and 35,000 must have been considered rural before the 1990, 2000, or 2010 census.
You can see a map of currently eligible areas here. According to the Census Bureau, 97% of United States land is rural. And 66 million people live in rural areas as well.
Another essential facet to understand is refinancing. While a conventional loan cannot be refinanced into a USDA loan, a USDA loan can be refinanced into another USDA loan or conventional loan.
The interest rate on direct single-family home loans is also just 4.375%, well below the national average of 6.92%. The interest rate is 0% down, and there is no PMI, so USDA loans should be a serious consideration for anyone in an eligible area.
Another little known fact about this program is how these loans can be used to buy new construction homes and fund proposed construction. They can even be used to purchase condos and new manufactured homes.
Also, with the guaranteed loan program, you can even buy a house with a pool!
See all your options. Start Here! (Dec 16th, 2024)Moreira Team Will Guide You Through Every Step of the Process
The Moreira Team specializes in helping clients get better loans at better rates. We make the process of getting a home loan fast and painless. Whether you’re a first-time homebuyer or looking to refinance, we have everything you need to make the mortgage process a cinch.
The team at Moreira understands how challenging the process is, which is why we walk you through every step. The average person may buy two or three houses in a lifetime, but we do this every day, which gives us the experience to eliminate the friction from your home buying experience.
In fact, USDA loans are just one of the many solutions we offer to new and existing homeowners. Be sure to visit our homepage here to see the entire suite of what we offer. Regardless of the route you choose, be assured you’ll be met with honesty, transparency, and a lasting relationship.