A Zero Down Mortgage Not Well Known
USDA Has a Deal for You if You Can Buy in the Right Location
Mar 13, 2009
Your home of choice can be in the outskirts of a medium sized town, a bedroom community area outside of a large city, or in a small town. If you have the opportunity, look into this government guaranteed loan that will give you 102% of the purchase price. The 2% is for the guarantee fee, which enables you to not have to pay mortgage insurance, or PMI monthly payments.
This way you can take advantage of the low 30-year rates USDA offers, as good or better than conventional rates! Even FHA loans have monthly PMI payments. They are usually around half of what conventional loans charge, but it does add to your monthly payment. With USDA, If the appraisal is more than the purchase price, you may use that appraised value for the loan amount. The difference between price and value must be used for closing costs. Otherwise, the seller is allowed to contribute to those closing costs.
Two Types of USDA Loans
There is a low income home loan and a moderate or middle income loan. You should stay away from the low income deal, even if your income is low, unless you plan to live in the property for the rest of your life and pass it on to your children. Why? The payments are subsidized partially. That means you are borrowing part of the payment. The loan creates the same situation as a negative amortizing mortgage. You go upside down, owing more than the original loan amount if you sell.
The moderate, or middle income mortgage has no such arrangement. There is a cap or limit on how much a household can earn. These limits vary from county to county and go higher according to the number of household family members. Both mortgage programs are stricter on property conditions than FHA. They focus on insulation more, for example, and they require a bit more inspection than a conventional or FHA loan appraisal. Whatever deficiencies exist must be cleared before the loan will fund even if it has been approved.
Where and How
If you decide you need the low income arrangement and don't mind the upside down consequence, you must consult a USDA regional office near you. They are the ones who originate and service the low income deals exclusively. You can do the same with moderate income. But if you want to avoid going to silly classes in person at the regional office, and if you want a professional to guide you through the process successfully, consult a mortgage broker first.
Not all mortgage brokers even know about USDA loans. And not that many mortgage lenders fund them. So you may have to tell your broker to look into this program. You can tell the broker that he or she will not have to go through the hoops that FHA requires to become an approved broker. And there are no fees or financial statements required to broker USDA loans.
Unless your broker is strictly city slicker, he or she will be delighted to get involved with USDA moderate income loans. The broker needs to communicate with the regional USDA office to determine which lenders can be brokered for their moderate income loans.
Basic Eligibility Guidelines
USDA is not as strict with credit requirements as conventional mortgages. But other guidelines are stricter. Each regional office can supply the income limits for you and your family. If you can give an address for your purchase, they can let you know if that location qualifies. If you qualify in both areas, go for it. It's a great deal.
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