Can I buy a house without a down payment?
Rising home prices are causing many potential buyers to wonder if they will be able to save enough for a down payment in today’s market.
If the down payment hurdle prevents you from owning a home, one option may be the Rural Development Secured Loan Program offered by the United States Department of Agriculture (USDA).
What is a rural development loan?
According to the USDA website, the Rural Development Loan program “helps lenders work with low and moderate income households living in rural areas to make home ownership a reality.” According to the USDA, “Providing affordable homeownership opportunities promotes prosperity, which in turn creates thriving communities and improves the quality of life in rural areas.”
With this loan, qualified buyers can “buy, build, rehabilitate, improve or relocate housing in an eligible rural area with 100% financing.” This makes the rural development program one of the only loans, other than the VA loan, that does not require an advance of funds for the down payment.
âThis is probably the most underutilized type of loan available to home buyers today,â said Lara Hitchcock, Mortgage Originator at PFCU. âI think people cling to the term ‘rural’ and believe their options are limited. But there are many eligible domains in our market including Grand Ledge, DeWitt, Williamston, Bath, Mason, etc.
What are the specifics?
One advantage that sets the rural development program apart from others is that you can borrow 100% of the appraised value of the house. So if you have a purchase price of $ 100,000 on a property valued at $ 102,000, you can use that extra $ 2,000 to fund closing costs, prepaid expenses, property repairs, etc. .
This rural development loan is not limited to first-time home buyers, but one requirement that can get tricky is income. To qualify, the income of all adult household members cannot exceed 115% of the region’s median income limits. If a husband and wife occupy a house, but only the husband will be on the loan, the wife’s income should still be taken into account. If the grandparents will be living in the house, their Social Security will likely be included in total income even though they are not on the mortgage.
What do these income limits look like? For a household of up to four people, including children, the limit in Lansing Market is $ 92,200. For a household of five to eight people, that’s $ 120,700.
There is no USDA credit score qualification, but most lenders require at least a 640. Although Hitchcock says some, including PFCUs, can accept scores as low as 620.
âBorrowers should also have at least two sources of credit with at least 12 months of positive payment history, be it a car loan, credit card, etc.,â he said. she declared. “However, the USDA accepts some non-traditional sources such as lease payments, utility payments, medical insurance payments, etc.”
The purchased home must be used as a primary residence (not an investment property or secondary residence), and it must be a single-family home (not a duplex). But there are options regarding the type of property – existing homes, new construction, condos, modular homes, and some manufactured homes apply.
When it comes to loan limits, buyers in most eligible areas can purchase a home for up to $ 285,000.
Are there any downsides?
Some potential buyers may fear that using a rural development loan will make them less competitive. In this fast-paced seller’s market, conventional loan offers are generally the most sought after (behind an all-cash offer). However, Hitchcock says PFCU has taken out many rural development loans, so she encourages buyers to at least explore the option.
âThis program has several advantages: no down payment, low interest rates and rural development fees which replace and are generally lower than private mortgage insurance,â she said. âI think the downsides are probably the income limits and the ownership restrictions. But for those who meet the requirements, this is a great loan option that has helped many home buyers achieve the goal of home ownership.
As with any loan program, it is important to discuss the details with your lender. There is no one-size-fits-all approach to mortgage lending. Therefore, while a rural development loan has many advantages, there may be a different program that better suits your needs. You can find a list of reputable local lenders by visiting the Greater Lansing Association of REALTORSÂ® website at www.lansing-realestate.com.