USDA Mortgages - A Zero Down Payment Option

June 25, 2014

A common misconception is that a United States Department of Agriculture (USDA) Mortgage applies to farms. In fact, under USDA regulations, having a working farm negates USDA eligibility. The purpose of the USDA program is to develop purchases in rural areas. You may be surprised by what is considered "rural".

Knowing if a house is eligible for a USDA loan can help you both buy and sell a property. Benefits include ZERO down-payment with a low monthly Private Mortgage Insurance fee. That's right, you don't have to have a penny for down payment and PMI is lower than standard FHA or Conventional Loans. However, closing costs still apply. If you are selling your home and it is USDA eligible, this can become a selling point for you and your Realtor. For a qualified buyer, knowing they can get the house for little out of pocket money may be a deciding factor between a USDA eligible and non-eligible house.

There are a few factors that determine eligibility. One, and most importantly, is the location of the house. While we won't go into every detail on how USDA draws lines on the eligibility map, a couple common factors is population density of an area, and average household income. There are designated areas in almost every county within NYS (New York City areas are not eligible). And for many counties, eligibility is county-wide.

USDA Eligibility

To check the USDA eligibility of a home, visit this website:http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do.

On the left hand side of the page click on the type of home you are looking to find (single or multi-family, business, etc.). After this, you will be asked to accept terms of service. On the next page enter the full address (without zip-code) to the search bar. The map will immediately tell you if the house is eligible. You can zoom out from here to see where they zone eligibility. Please note that the zones change often, so check back if it there is time between buying or selling your house.

Income limits of the buyer determine eligibility as well.

1-4 person = $ 79,000
5-8 person = $104,300

Other benefits and specifications for USDA Mortgages:

• Owner occupied single family homes, condos or town-homes that are primary residences and are in designated rural areas.
• Borrowers need minimal to no cash savings.
• Liberal Qualifying Ratios of 29/41% which may be exceeded based on credit score.
• Monthly payment will include a .4% fee based on the Base Loan Amount. This fee remains in effect for the life of the loan.
• Unlimited gifts and grants.
• Fixed Rate, 30 year loan.
• Loans can be up to 102% of the appraised value of the property.
• The Rural Housing Guarantee fee of 2% of amount financed may be included in the Loan To Value ratio.
• Borrowers need to meet moderate guaranteed income guidelines.
• Funds may be used to purchase existing homes or to constructa new home.
• Manufactured housing is NOT eligible.

Please consult with your Premium Mortgage loan officer on further requirements and regulations.

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