Does a home loan with no down payment and decent rates sound too good to be true? It isn't.
Ag Department-backed financing is so attractive because it requires no money down but still has rates competitive with other government mortgage products. FHA loans, the most common type of government loan, require a 3.5% down payment at minimum, and saddle low-credit buyers with costly mortgage insurance premiums. USDA mortgages only require a small annual fee (a fraction of the FHA’s rates) and an upfront premium of 2% of the loan amount. However, that premium can be rolled into the mortgage, giving buyers the option of getting financed with a 0% down payment.
What’s The Catch?
The catch is the Department of Agriculture limits who can get one of these loans. If you make more than 115% of your area’s median income or already have “adequate housing,” you’re not eligible for USDA financing. You’re also required to purchase housing that is “modest in size, design, and cost” and meets various building codes.
Then there’s the matter of credit. Technically, the USDA doesn’t have a strict credit minimum, but most lenders are reluctant to sign off on anyone with a score south of 620. That’s more than 100 points higher than credit limits for FHA loans, which require a minimum FICO score of 500for buyers willing to put down 10% up front. The good news is buyers can offset poor credit by showing mitigating factors like a healthy bank balance or a monthly rent bill higher than the home’s future mortgage payments. You can read the details of buyer and property requirements on the USDA’s website.
Most important, you must live in a specific area defined by the USDA as rural.
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