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No Down Payment Mortgage Option

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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!)

The Zero Down Payment Mortgage Option That Will Blow Your Mind-I did not know that this program existed until we were well into our house search. If you're willing to be open about the location of your home, you're not gonna want to miss this program offered by the USDA. homeowner | house hunter | rural | home loan | first time home buyer | real estate

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.

Finished DIY throw pillows

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.

our new house

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.

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Heather

Saturday 11th of May 2019

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.

Hannah

Monday 4th of February 2019

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!

casey shaw

Thursday 19th of July 2018

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

Monday 6th of August 2018

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!

Brittany

Tuesday 9th of January 2018

Is there an equivalent program in Canada?

An Exercise in Frugality

Thursday 11th of January 2018

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!

Debbie Sweistris

Wednesday 4th of October 2017

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

Friday 23rd of March 2018

This was very comprehensive explanation. I am glad to know about this.