Have you ever heard of the USDA Rural Development loan? If you haven’t you could be missing out!
We were able to buy our first home with no money down. Yup, that’s right, a legit zero down payment mortgage. If you want to know more about this program then keep reading! (PS: If you’re selling a home and looking for tips on how to stage your house to sell quickly, be sure to check out my post on that as well!)
No down payment mortgage. Do I have your attention now? It’s not a scam, and it’s NOT just for first time home buyers. It’s not a well-known option, but it’s the real deal, and today I wanted to share a bit about our experience with the USDA Rural Development Home Loan.
Can you get a no down payment mortgage?
We bought our very first house a little over a year ago. One of the hardest things was figuring out financing options.
We did NOT have the required down payment for a traditional loan. We did not have the required down payment for an FHA loan either. We just knew that we had to get out of the renting vortex.
We’d sunk SO much money in rent over the years into overpriced apartments, security deposits and alleged “damages”. We’d been sued by a previous apartment management company for falsified “damages” which was later dismissed in court as a scare tactic when they had sued ALL 9 tenants that moved out that month for the same exact reason…and then didn’t bother to show up to court on the assigned date.
We’d had ENOUGH of shady management companies and difficult landlords. We wanted our own home, and we wanted it NOW.
While that may not seem to be the most fiscally responsible approach, we did do TONS of research on our options. We eventually stumbled upon the perfect option for us: The USDA Home Loan Program.
What is the USDA Rural Development Program?
Most people aren’t aware of this program. Its a home loan that is guaranteed by the US Department of Agriculture, also known as the USDA. The Rural Development loan is an option in some areas.
Basically the USDA provides an incentive (in the form of low interest rates and 0% down payment) for families to buy a home in a rural area. This helps revitalize the economy in these lower-population areas, and allows folks like us with not a lot of up-front cash to take advantage of a great deal!
You do not have to be a first-time home buyer to utilize the USDA zero down payment mortgage program. Its important to note that not all areas qualify for this loan…even some you might think of as “rural” may not technically qualify through the official rules of the program.
If you’re interested to see what towns and areas qualify where you are interested in buying, you’ll want to go to the USDA Rural Development website. In the left sidebar under “Property Eligibility” click single family homes, and input the address of the home you’re looking at.
It requires a bit of research, but in the end, we were able to buy a beautiful home that we would have otherwise missed out on.
Here’s a PDF factsheet with some of the highlights of the USDA Rural Development Loan Program.
There are income limits, but they are fairly generous. There’s also a low income version (a USDA Direct Loan) but we used the USDA Guaranteed version. Both options are no down payment mortgage options.
Overall the experience was only slightly more challenging than a conventional mortgage (simply because you are more limited in where you can search for properties), but even for us first-timers it went extremely smooth.
We showed up to our closing with a check for $100 in our pocket. That’s literally all we paid! It was our portion of the closing costs not covered by the seller (who paid the majority).
I am by no means a financial expert, or a mortgage guru, so I can’t tell you if this option is right for you. It certainly isn’t for everyone: our tiny town of 8,000 people is charming but a little isolating.
If you don’t mind that sort of thing (even better if you ENJOY living out in the middle of nowhere) this is definitely an option you want to consider.
I’m not being paid by the USDA or anything, I just wanted to share this option because its not one that is well-known and I think for the right family, it could really be beneficial.
Oh, and don’t let the “rural” thing scare you. Our town qualified as rural because of its size, but we aren’t living in a farmhouse shack. This is our house. We live in a beautiful subdivision in this quaint little town.
What if I don’t qualify for FHA down payment assistance?
Doesn’t matter. This is a totally separate program. You don’t need to be a first time home buyer to take advantage of this no down payment mortgage option.
If you’re thinking about buying a house, check out my posts on tips for first time home buyers and how to buy a house without losing your sanity! And when you’re ready to sell your home, check out my DIY home staging tips.
Is this a down payment loan?
No, but you will have to pay for PMI. This is something you’ll want to discuss with your lender or mortgage officer.
Where’s the USDA Home Loan Map?
You can find the areas that qualify for a USDA mortgage loan here.
Who handles USDA Rural Development Loans?
Only qualified lenders can hold the USDA Rural Development loans. See if your lender is qualified by checking this list.
jessica says
hi can you tell me the steps of how you applied thanks!!
Rose says
Hi Jessica! There’s a link in the blog post above. If you click on that it will take you directly to the USDA’s website for the program. You’ll need to search the area you’re looking at houses in to see if it qualifies. If it does (or if you’re open to different areas) then you’ll want to search the site and it will give you a list of approved USDA lenders in your area. We had to call a few to find one that worked for us, and then they helped us with the process from there. I’m not sure exactly how much it differs from a standard home loan other than a few extra forms, but the loan officer does all the hard work and they will walk you through the rest! Good luck to you!
jessica says
yea i looked at my area and the houses are a bit pricey so im thinking i might have to look in a more rural area. So let me get this straight and im sorry if you already answered this but i have to look for the house myself and let them know which one i want? or do they have a list of houses? Thanks
An Exercise in Frugality says
They basically decide what areas are “rural”. You can then look at any real estate listings in that area. They don’t have the listings on that site last I checked, but say you find a house you like, you input the address into their site and they will tell you if its a qualifying area. 🙂
jesse says
good afternoon
I went to the USDA website its asking me to create account also it’s saying that I have to also go to a local office and bring my DL and some other stuff is this right?
An Exercise in Frugality says
I believe so. We had to meet with a loan officer who was endorsed by the USDA to handle their process. You can look on their website to find reps in your area. 🙂
Gentry Fisher says
Hi! I am interested in buying my first home soon but don’t have a 20% down payment, so this loan is appealing and the home I am interested in is in an eligible area.
One question I had is the income caps… I am under the one for the Guaranteed loan, but what if I’m not at some point before the loan is paid off? (Say I get a raise or new job…) Does that matter? Or what if I get married and our combined income is over the cap?
Thank you for your help!
An Exercise in Frugality says
I believe you only have to be under the income cap when you purchase the home but that’s something you’ll want to ask the loan officer to make sure! Good luck in your home buying journey!
nlaf says
If you don’t mind me asking, how much did you purchase your home for finally? I’ve checked and the eligible homes near me are all in the $300K+ range.
An Exercise in Frugality says
I don’t mind! Our house was listed for $165k but appraised at $150k which is what we wound up paying for it. We do live out in the boonies in a small town so of course houses are cheaper here.
Anonymous says
Hello there, just wanted to know if ur mortgage is more because you didn’t put a down payment down
Rose @An Exercise in Frugality says
Hi there! Well we didn’t pay more than the price of the house if that’s what you mean. For example, the house was $150,000. If we had $20,000 for a down payment, our mortgage would have been $130,000 instead of $150,000. So in that sense, yes we did pay more (and would pay more in interest) but there was no additional fee or anything like that.
Because we won’t be in this house for more than a few years, we weren’t too concerned about the additional interest). We decided for us that it was worth it anyway because we were spending a fortune in rent with nothing to show for it. Rent was more than our mortgage!
Anonymous says
Rose, I called my local rural development number and they said they would send me a prequalification letter. What exactly does it take to qualify? And how do you pay off the loan? A little a month? Or a certain amount a year? I’m really interested in doing this and am very appreciative of your post!
An Exercise in Frugality says
I believe a credit score of 620 or higher was the requirement but I can’t remember. There’s two different programs, one has an income cap (the USDA Direct Loan) and the other one does not (USDA Guaranteed Loan). We did the one that does not have an income cap so I’m not sure about the other one’s requirements. For us the loan is just the mortgage. We have PMI which is rolled into our mortgage payment but I believe that is required any time you don’t put down 20%. I don’t *think* there were any extra fees/loans associated but if there was it was all rolled into our mortgage.
Unfortunately I don’t remember all the details as we actually bought the house a couple years ago now and the process is such a whirlwind of information that I don’t remember all the specifics. We had a wonderful loan officer that held our hands through the whole process.
Hope this helps a little, sorry I don’t have more details for you. I really should have written the post RIGHT after we bought the house!
Anonymous says
No this has been more than helpful. So you do have to have some type of credit in order to be elidgable? Could the house be in someone else’s name that has decent credit? I’m sorry for asking so many questions, and if you don’t know that’s okay! Thanks for the help!
An Exercise in Frugality says
I believe you have to have a credit score of 620 or higher but I’m not sure. You can have a cosigner just like any other mortgage at least for the USDA Guaranteed loan. 🙂
Anonymous says
I actually bought my house in 2002 with a USDA Direct Loan. I was a single mom at the time with 2 children, throwing money away on rent. Because of my income at the time, I received a subsidy from the government for the first 2 years I owned the home, which was $200/month, $4,800 over the 2 years. I am getting ready to sell the house and will have to pay a portion of the subsidy back, I believe they want $3,800. Small price to pay to be walking away with money in my pocket to buy a new, bigger house. I also did not pay any closing costs and my mortgage terms were 33 years. This is a GREAT alternative to single/low income/don’t have 20% option for people. If I didn’t buy my first home this way, I would have never been able to buy a house. Stop throwing your hard, earned money away! 🙂
An Exercise in Frugality says
That’s wonderful to hear! We did not qualify for any subsidy, but it sounds like that worked out amazingly well for you! It’s such a great feeling to be a home owner (and often a better financial choice) so I am so glad we’ve found this way to make it happen. I am just sad more people don’t know about it. I did a lot of research before hand because it is one of those things that sounds too good to be true, but its not, they just don’t really advertise it. I’m so glad to hear it worked out so well for you!
Tanisha says
I’m looking into this option to buy our first home. I do have a few questions. The income limits confuse me. Do you have to make a 6 figure income to apply for this? The house we’re looking at is for sale for 70k, which with a regular loan we can afford, but can’t afford a really good down payment. Thankful this home falls into an area eligible for this kind of loan. I’m just confused because we definitely don’t make a six-figure salary…
An Exercise in Frugality says
The income limits I believe only apply to one of the loan types. There are two. You should be able to qualify for the USDA Guaranteed Loan (as opposed to the Direct Loan). We didn’t make a six figure salary either. See if you can find a mortgage loan officer in or around the rural area because they are more likely to be familiar with the program than other lenders. Good luck!
Debbie Sweistris says
I know this is a bit after the fact for the folks above but there are 2 loans for USDA that Rose has stated. There is the direct loan that is income driven that you will apply directly with USDA. On this program there are income limits and the rates are very low. There is a recapture fee if you refinance or sell the property within a certain time frame. For example the going rate on a 30 year mortgage maybe 4.25% and the direct loan is starting you with 2.25% the recapture would be the interest difference between the 4.25% and the 2.25%. The guarantee USDA loan is also income based and you can not make more that a certain percentage of the median income limits for each county. So for an example a family of 4 annual income would be approx. 78,300.00 in specific County A. Family of 5 would be 106,700.00 and so on. USDA does not allow financing on any property that looks at all like a farm (cannot have barn, chicken coup, etc) All closing costs can be added to the loan and some minimal repairs. They will go 102% of the appraised value of the property. Rates are a bit higher on the guarantee loan. USDA is rural so they only lend in areas that have a population of less than 25,000 or 26,000 people. There is no mortgage insurance on a USDA loan but they do have an annual fee that lowers each year based on the remaining principal balance annually. Both the direct and guarantee have income limitations. Both are great loans programs. The direct will use income documentation that the guarantee sometimes won’t. Credit score on the guarantee normally needs to be 620 or above. It is a very good loan when it is in the designated area and you have the income for the program.
Rachel says
This was very comprehensive explanation. I am glad to know about this.
Rachel says
Also, you say they will not even think about financing a property with a barn or chicken coop. Is there a reason for that. Is there anywhere that explains those restrictions?
Brittany says
Is there an equivalent program in Canada?
An Exercise in Frugality says
Hi Brittany! I’m sorry I don’t really know the answer to that. This program is through the US Department of Agriculture, so I would say if there’s a similar type of entity in your city or province I would suggest checking with them to see if they know of anything. Often times cities or counties in the US have programs to encourage people to move to their area, so check on your local level as well. Hopefully there’s something similar!
casey shaw says
if this works then you have just changed my three babies my husband and I’s lives forever. thank you for sharing!
An Exercise in Frugality says
Best of luck Casey! I hope you’re able to qualify and purchase a home through this program–it is definitely life changing! You’re very welcome, and I have my fingers crossed for you!
Hannah says
Hello there,
Very interested,but I was wondering since there is no down payment. What does the interest rate look like? And sorry if you have already answered this thank you!
Heather says
I am in the process of doing this right now and we are so excited. We didn’t think we would be able to buy a house until a home builder mentioned checking out a Rural Development loan. We have the direct loan, (income cap) I’m not sure about everywhere else, but here it’s 80k per year. We close on our house in a few weeks and I honestly couldn’t have asked for a better program.