Buy a Home with No Money Down - The USDA Loan FAQ
It seems like everywhere we turn somebody is telling us that, with mortgage rates at all-time lows, now is the time to purchase a home. For the potential homeowner that makes a good living and has a decent credit score but is short on cash, these reports do nothing but fuel frustration.
The down payment for a mortgage is the biggest obstacle standing in the way of home-ownership for millions of Americans, but it doesn't have to be.
If you are willing to live in a rural area of Billings, approved by the United States Department of Agriculture, you can buy a home with no down payment.
The USDA Rural Housing Development program offers two USDA mortgage loans, the direct loan and the guaranteed loan. The former is primarily for low to very-low income borrowers while the latter is directed at low- and moderate-income households.
Do I have to be low-income to use the USDA loan?
The income limits depend on a variety of factors like household size, property state/county and the number of dependents and/or children living the household. see the latest income limits for Billings online at USDA’s website.
How does the USDA determine eligibility?
The USDA will first ensure that you are able to make the house payment. The formula they use is that your house payment must not exceed 29 percent of your gross monthly income. Then, they will take a look at your debt-to-income ratio. It must be 41 percent or less of your gross monthly income.
Must I be a first-time home-buyer to qualify for the USDA loan?
No. This loan is available to all who qualify.
Can I use the USDA loan to purchase an investment home?
USDA can only be used to purchase a primary residence. Second homes and investment property financing is not permitted.
Is the USDA Loan guarantee the same as FHA's?
Not quite. USDA only guarantees 90 percent of the loan should the borrower default. The borrower is responsible for the remaining 10 percent.
Does the USDA loan require that I purchase private mortgage insurance?
When you obtain a USDA mortgage you will be required to pay an upfront fee that will be used to cover losses incurred by the lender should you default on the loan.
Although this is similar, in purpose at least, to the private mortgage insurance requirement on conventional loans, the fee is far less expensive than both conventional Private Mortgage Insurance and FHA’s Mortgage Insurance Premium.
And, as an added bonus, if you can’t come out-if-pocket with the fee, the USDA will let your roll the cost into your loan. For 2018, the upfront fee is 1% of the home’s price, but it changes annually, so contact us for the current fee amount.
So, no down payment - what about closing costs?
While FHA allows the seller to contribute only a certain percentage of the buyer’s closing costs, the USDA loan has no limits. However, should the seller not be amenable to helping with closing costs, you may be able to roll some of the closing costs into the loan. To do this, the home must appraise for more than what you’ve agreed to pay for it.
What kind of a home can I purchase with the USDA loan?
The USDA will not allow the borrower to purchase a fixer-upper. The home must adhere to HUD requirements – with no roof, pest, safety, plumbing, electrical or structural issues. Generally, the home must be 2,000 square feet or less.
Then, the home must be located in what the USDA considers a “rural” area. You can determine if a home you’re interested in purchasing is located in an eligible area by entering its address at the USDA website.
How much can I spend on a home with the USDA loan?
The USDA loan limit for Yellowstone County for 2017 is $220,532. The administration revisits this number annually, so call the Billings USDA office for an update at (406) 657-6297.
Will I need to pay to have the home appraised?
The USDA appraisal charge is typically $425.00 to $500.00 and is usually paid for at the time of service.
We are not loan specialists but will certainly be happy to refer you to one should you have any questions about obtaining a USDA no down-payment loan in Billings. Feel free to contact us.
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