There are several types of 0 down mortgage loans available on the market right now, for potential homebuyers who can’t afford too much down payment – or even any of it at all. Their increased availability nowadays can be attributed to the fact that the US economy is still reeling from the effects of the housing bubble and the recession that followed it. It’s a bit of a paradox, if you think about the fact that the very low down payment mortgages actually created that situation in the first place.
In its wake, many would-be owners were stripped of the financial means that would ensure a good enough credit rating for an advantageous mortgage and many turned to renting. Nowadays, however, first-time homeowners, as well as people switching back from their status as tenants to ownership, have several low down payment loan options at their disposal. And some may even be eligible for so called “0 down mortgage loans”, such as USDA loans.
How the USDA rural development mortgage guarantee program works
USDA home loans take their name from the U.S. Department of Agriculture. The institution runs a mortgage guarantee program, also known as ‘Section 502’, whose popularity has made the funds run out before the end of the fiscal year repeatedly. Although the program is funded by the Department of Agriculture, USDA zones are not all rural and USDA property eligibility is not strictly confined to farmland. In fact, many of its beneficiaries live in areas which would qualify as anything but rural and which look as urban as any other town or city around the United States. In short, there are many suburban areas which you will find are in eligible areas, if you check out the maps you’re interested in on the USDA website.
One of the best parts about USDA loans is that, since they’re entirely guaranteed by the Department of Agriculture, they are considered very safe by the financial institutions that lend out the money. Typically, the rates for a USDA mortgage will be lower than those for home loans taken out via the FHA, VA, or Freddie Mac and Fannie Mae. Aside from lower interest, USDA loans also have comparatively lower Mortgage Insurance Premiums. It’s .4% per annum, which is 70 per cent less than the FHA can guarantee in terms of MIPs. A USDA home loan closing typically takes about 45 days to be completed.
USDA eligibility criteria
The best place to learn more about taking out an USDA loan is the Department’s website itself. There are several maps there which show exactly what areas qualify for such funding. Aside from location, buyers are also assessed for eligibility based on the income of their household. And while the program doesn’t strictly target first time buyers, it was, indeed, designed with them in mind. In terms of income, eligible household should not earn more than 15 per cent over the median income in their area (with some exceptions depending on the size of the household). Check the USDA website for income limits for your area.