Nothing could be further from the truth.

The fact is that there have always been and always will be mortgage options for borrowers that don’t have a large down payment.  Here are five loan options for those who have 5 percent or less for a down payment.

Check your eligibility to buy a house with less than 5% down. Start here (Sep 16th, 2024)

#1: Conventional loans with PMI

Conventional loans are mortgages approved using guidelines established by mortgage giants Fannie Mae and Freddie Mac. Historically, lenders required a down payment of 20 percent. Yet in 1957, private mortgage insurance, or PMI, was introduced.

Mortgage insurance is an insurance policy that repays the lender should the borrower default. The borrower pays for this insurance policy along with their monthly mortgage payment. This extra expense can be well worth it though.

Say a home is sold for $200,000. A 20% down payment is $40,000. That’s quite a lot for new home buyers. A 5 percent down is much more feasibly, at only $10,000. A PMI policy can be purchased at a cost of approximately $150 to $300 per month, depending on credit score. But this option helps bring down the barriers to homeownership significantly.

Check your home buying eligibility. Start here (Sep 16th, 2024)

#2: Federal Housing Administration (FHA) loans

In recent years, FHA has been the standard for first-time home buyers. Although that’s shifting because of increased offerings in conventional lending, they are still very popular.

FHA loans require as little as 3.5% down, a bit less than the conventional requirement. That means on a $200,000 loan, the minimum down payment is just $7,000.

An FHA loan has a monthly mortgage insurance requirement like a conventional loan, but it also has an “upfront mortgage insurance premium,” or MIP. The MIP is 1.75% of the loan amount, or in this example an additional $3,500. However, this upfront premium does not have to be paid out of pocket and can be rolled into the loan amount.

The monthly mortgage insurance premium for an FHA loan is typically 1.35% of the loan amount per year, divided into 12 equal installments and added to the monthly payment. For example, a $200,000 total loan amount would require $225 per month in mortgage insurance.

Although an FHA loan is more expensive than its conventional counterpart, it allows for a lower credit score and offers more lenient income requirements, making it the best program for some home buyers.

Check your eligibility for an FHA loan. Start here (Sep 16th, 2024)

#3: VA loans

This program is a special entitlement offered to active duty personnel and veterans of the U.S. armed forces. The VA loan requires no down payment whatsoever. In addition, there is no monthly mortgage insurance premium, just an upfront premium, usually 2.3% of the loan amount.

The minimal costs associated with this loan make it the clear choice for current and former members of the military.

Those who have served in one of the branches of the military including the National Guard or Reserves could be eligible.

For complete guidelines, see our VA home loan page or contact a VA-approved lender.

Check your VA home loan eligibility. Start here (Sep 16th, 2024)

#4: USDA loans

Sometimes referred to as the Rural Development Loan, the USDA program requires no down payment.  As the name implies, the program is designed to assist borrowers buy and finance a property in rural, less urban areas.

In order to qualify for a USDA loan, the property must first be located in an eligible area. These areas are mapped on the USDA website. This is the first place borrowers should visit to see if a prospective home is eligible. By entering the address on the website, the property’s eligibility will be determined.

Eligible areas are often rural in nature, but surprisingly, many eligible areas are suburbs of bigger metropolitan areas. Even if you don’t think the area in which you’re looking to buy a home is eligible, it’s worth taking a look at the USDA loan map.

You could discover that you’re able to buy a home with zero down payment.

Check your eligibility for a USDA loan. Start here (Sep 16th, 2024)

#5: Fannie Mae HomePath loans

Editor’s note: Fannie Mae ended their HomePath program on October 6, 2014. For more details, visit our Fannie Mae HomePath page.

Fannie Mae has a list of foreclosed properties that it offers for sale on the website HomePath.com. Buyers can look for homes in their area with a simple city or ZIP code search.

Home buyers can purchase these homes with only 5% down. What’s more, buyers receiving a gift from an eligible gift source only need $500 of their own money.

Unlike a standard conventional loan, Fannie Mae HomePath loans don’t require mortgage insurance or an appraisal. Some of the properties may be in need of repair, but they provide a great opportunity, especially for first-time home buyers who have little to put down on a home.

A 5% down payment is all you need

Lenders have realized that it’s unrealistic to require a 20% down payment considering today’s home prices. That’s why many programs are available, even to those with less-than-perfect credit and little money saved.

And current interest rates make it even more affordable to buy a home. Contact a reputable lender to find out which of these programs might work best for you.

Check your eligibility to buy a house with less than 5% down. Start here (Sep 16th, 2024)

The post 5 Ways to Buy a Home with 5% Down or Less first appeared on My Mortgage Insider.

• Buying with no money down: Usually, home buyers put at least 3% down, and a lot of buyers need larger down payments to get competitive interest rates. USDA loans require no money down.
• Getting competitive interest rates: Even with no down payment, USDA loans can offer competitive interest rates because they’re guaranteed by the federal government.
• Paying less mortgage insurance than with an FHA loan: Compared to federally insured FHA loans, USDA loans charge lower mortgage insurance premiums.

If you meet the USDA’s geographic and income rules, a USDA Guaranteed Loan could make you a homeowner with less money out of pocket.

Check your USDA loan eligibility. Start here (Sep 16th, 2024)

What is a USDA home loan?

USDA home loans help Americans in rural and suburban areas become homeowners through two separate loan programs:

• USDA Guaranteed Loans: The USDA insures private mortgage loans for moderate-income buyers in rural areas
• USDA Direct Loans: The U.S. Department of Agriculture lends money directly to low-income home buyers who live in eligible rural areas

This article will focus on the USDA Guaranteed Loan program, which is far more common than the USDA Direct Loan. This program works like most other loan types available to current home buyers.

In a nutshell: private lenders lend money so the borrower can finance a new home purchase. Mortgage payments go to the private lender or loan servicer.

The U.S. Department of Agriculture’s role is to insure the loans, making them more attractive for lenders. The USDA’s end goal is rural development, and these attractive home loan options help spur growth.

USDA loan requirements for 2024

Before you apply for the USDA home loan program, make sure you meet the program’s eligibility requirements:

• Geography: If the city you’re buying a home in has fewer than 10,000 residents, your home should meet the USDA definition of a “rural area.” Unincorporated areas also qualify. Some municipalities with up to 20,000 people will qualify for USDA financing.
• Income: Your household income must fall below the USDA’s limits for your area. The limit is 115% of your area’s median income. If your area’s median income is $50,000, you can’t earn more than $57,500. You can measure your income eligibility using this USDA tool.
• Home characteristics: USDA loans finance primary residences only. USDA loans can finance a manufactured home if it’s brand new.

If you meet both the income and the geographical requirements above, you’re eligible to submit a USDA loan application. However, USDA loan eligibility doesn’t guarantee USDA loan approval.

Getting approved for a USDA loan

The USDA insures loans for moderate-income people who are buying rural housing. But private mortgage lenders underwrite these loans.

To get your application approved, you’ll need to meet your lender’s requirements. These include:

• Credit score: USDA-approved lenders usually look for FICO scores of 640 — higher than the 620 that most conventional lenders require and the 580 FHA lenders can accept. If you haven’t established a credit score yet, your lender may be able to check your rent and utility payment histories instead.
• Debt-to-income ratio: 41% is the maximum DTI allowed by the USDA. This is also more strict than many conventional loans, which top out at 43%, and FHA loans which could go as high as 50% DTI in some cases.
• Employment history: USDA-approved lenders want to see at least two years of steady employment.

If you meet all of those requirements — and if your home purchase price does not exceed the home’s appraised value — you could buy the home with no money down.

Step-by-step guide to getting a USDA loan

To get your USDA home loan, follow these steps:

1. Get preapproved for a USDA loan

The preapproval process shows how your application would perform in a real underwriting process. You’ll get a good idea about your price range and monthly payment size without making any commitments.

It’s smart to get at least three preapprovals since lenders’ rates can vary.

2. Find a home in an “eligible rural area”

USDA Guaranteed Loans typically finance single-family homes in cities and towns with populations of 20,000 or fewer and in unincorporated areas.

Not sure about a property? Enter the address into this map before making an offer on the home.

3. Apply for your loan

After you’ve found a home, made an offer, and gone under contract, it’s time to apply for the USDA rural development loan.

You’ve already compared lender offers in Step 1. Now you can make your application official with one of the lenders. USDA loans offer 30-year terms with fixed rates.

4. Follow your loan officer’s instructions

Your loan officer will guide you through the process of uploading financial data for the underwriting process. Be sure to respond to your loan officer’s request for more information as quickly as possible.

5. Get your own home inspection

The USDA will check out the home you’re buying to make sure it provides minimum safe living conditions. To get a more thorough assessment of the home’s condition, you should hire your own home inspector.

If your inspector finds major structural damage or systemic problems with the home, you may want to look for a different home. You could also ask the home’s current owner to fix the problems.

6. Close the home loan

If you’re happy with the home inspection — and if your lender’s underwriters are satisfied with your financials — it’s time to make the home purchase official.

USDA home loans do not require down payments as long as the home’s purchase price does not exceed its appraised value. But you will need to pay closing costs, which often range between 2% and 5% of the loan amount. For a $250,000 home, closing costs could range from $5,000 to $12,500.

Closing cost or down payment assistance programs in your area may be able to help.

How USDA loans work

A no-money-down mortgage may seem too good to be true, especially in a market where a lot of homebuyers still think they’d need 20% down.

Many first-time home buyers wonder: How can lenders allow no-money-down mortgages while still charging competitive interest rates?

It’s possible because of the USDA’s mortgage insurance. This insurance would compensate the lender after a foreclosure. In short, lenders face less risk, and less risk translates into a better deal for home buyers.

Repeat and first-time home buyers can benefit from the USDA program, as long as they’re buying a primary residence, live in a designated rural area, and earn less than 115% of their area’s median income.

USDA Guarantee Fees

USDA loans aren’t a handout. Home buyers contribute to the cost of their loan’s USDA mortgage insurance. They pay through the USDA’s guarantee fees.

The first guarantee fee adds 1% to the loan amount at closing. For a $250,000 home loan, this upfront guarantee fee would cost $2,500. Buyers can roll this fee into the loan amount and still buy with no money down.

Along with the upfront fee, buyers pay an annual USDA loan fee of 0.35% of the loan amount. For the same $250,000 home, the annual fee would cost $875 — or about $73 a month — during the first year.

This annual fee will be added to your monthly payments for the life of the loan. But the fee gets smaller as the loan balance decreases. Refinancing into a conventional loan later would eliminate this annual fee.

How USDA loan fees compare to other types of mortgages

The USDA’s guarantee fees can be money well spent. They allow you to borrow at competitive interest rates with no down payment — an advantageous route to homeownership.

Plus, other types of loans charge mortgage insurance fees, too.

• FHA loans: Charge mortgage insurance premiums of 1.75% upfront and 0.85% annually. Unless borrowers put 10% or more down, they pay the FHA’s annual fee for the life of the loan.
• Conventional loans: Need no upfront mortgage insurance but require private mortgage insurance (PMI) when borrowers put less than 20% down. PMI normally ranges from 0.5% to 1.5% a year. Buyers can cancel PMI once they’ve built up 20% home equity.
• VA loans: Charge an upfront fee of 2.3% for first-time buyers with zero down and up to 3.6% for repeat buyers. VA loans do not require annual mortgage insurance

Compared to these loan types, USDA loans charge lower fees. Only VA loans, which go to veterans and active duty military service members, can charge less with no money down.

Check your USDA loan eligibility. Start here (Sep 16th, 2024)

More about USDA loan eligibility

The biggest drawback to USDA loans is that — unlike FHA and conventional loans — not everyone can apply for USDA-insured financing.

But USDA eligibility may not be as difficult as you think. Let’s look at each of the requirements for eligibility.

USDA income limits

What does 115% of area median income really mean?

A family of two is eligible to buy a home in a Seattle suburb area with an annual income of up to $93,450. If you have a family of five and you’re moving to the same area, you can make up to $123,350 a year.

Annual income limits vary by region. For a five-person family, here is the maximum qualifying annual income in other areas:

• San Antonio, TX: $98,650
• Chicago, IL: $115,100
• San Jose, CA: $161,000
• Miami, FL: $106,700
• Richmond, VA: $114,750

As you can see, you can earn a healthy income and still qualify for USDA financing.

USDA credit score requirements

Potential borrowers don’t need to have “good” credit history to get a USDA mortgage loan. Lenders require a credit score of just 640 to qualify.

USDA geographic requirements

A smart first step is to check with a USDA lender on the USDA-eligible area closest to your current residence.

Most lenders, especially those around eligible areas, offer USDA loans. They process all the paperwork and work directly with the U.S. Department of Agriculture to get a loan approved.

USDA loans work for homes in unincorporated rural areas and in small towns with populations of 10,000 or fewer. A lot of municipalities with up to 20,000 can qualify if the area is “rural in nature,” according to the USDA.

But this doesn’t mean you’d need to buy a house that’s located an hour from the nearest grocery store, restaurants, and medical clinics.

In fact, USDA financing can work in the outlying suburbs that surround many of the nation’s biggest cities.

If your current lender does not offer USDA loans, find one that does. Don’t opt for FHA simply because your preferred lender can’t do USDA loans.

USDA first-time home buyer FAQs

Does the USDA require first-time home buyer education?

USDA Guaranteed home loans do not require first-time home buyer education. Even though it’s not required, home buyers can benefit from a brief education course if they’re not already familiar with the mortgage application process. USDA Direct loans — for which the USDA is the lender — do require first-time home buyers to take an education course.

How do I qualify for a USDA loan?

First, make sure you’re USDA loan eligible. This means buying in a small town or unincorporated area and earning 115% or less of your area’s median income. Then, make sure you are eligible as a borrower. It’s best to have a credit score of 640 or higher and a debt-to-income ratio of 41% or lower.

Are only first-time home buyers eligible for USDA loans?

No, any home shopper who’s buying a primary residence — and not a vacation home or investment property — can apply for USDA financing.

What is the maximum amount I can borrow with a USDA loan?

The USDA doesn’t set a maximum for USDA Guaranteed Loans. Instead, your lender does. Lenders base maximum loan sizes on borrowers’ ability to repay the loan. Debt-to-income ratio (DTI) and income level affect maximum loan size. The USDA will insure the loan as long as the loan amount doesn’t surpass the appraised value of the home.

How much are closing costs for a USDA loan?

Closing costs vary, but they typically range from 2% to 5% of the loan amount. On a $250,000 loan, closing costs could range from $5,000 to $12,500. The home’s seller, or a closing cost assistance program in your area, may be able to help.

Do USDA home loans require a down payment?

No, USDA loans require no down payment as long as the home’s appraised value is higher than the loan amount. If, for some reason, your purchase price exceeds the appraised value, you’d need a down payment to make up the difference. For example, if the home you’re buying is appraised at $245,000 but you’ve agreed to pay $250,000, you’ll need to make a $5,000 down payment.

What is the minimum credit requirement for a USDA?

Most USDA lenders look for credit scores of at least 640 and debt-to-income ratios of 41% or less.

Do USDA loans have PMI?

No, but they charge a similar fee: the USDA’s guarantee fee. This costs 1% of the loan amount upfront and 0.35% of the loan amount each year. This annual rate is cheaper than most PMI policies which average about 1% per year.

How do I find out whether a property is USDA-eligible?

To find out whether a property is USDA-eligible, enter the home’s address into the USDA’s lookup tool.

Can I buy a foreclosure with a USDA loan?

Yes, if you and the home meet the USDA’s eligibility rules, the USDA will insure a loan on a foreclosed home. Keep in mind the home will need to meet the USDA’s basic requirements for safety and livability. A lot of fixer-uppers don’t meet this requirement.

Check your rates for a USDA mortgage

Average rates for home purchases and refinances have risen back to their historic norms.

Your USDA loan rate will depend on your income, debt, and credit score.

The USDA loan program can offer competitive rates even when you have average credit and no down payment.

That’s one reason USDA loans can be so attractive to first-time home buyers.

Check your USDA loan eligibility. Start here (Sep 16th, 2024)

The post USDA Loans: First-time Home Buyer’s Guide 2024 first appeared on My Mortgage Insider.

One hundred percent financing home loans are mortgages that finance the entire purchase price of a home, eliminating the need for a down payment. New and repeat home buyers may be eligible for 100% financing through nationwide government-sponsored programs.

Check your eligibility for a zero-down mortgage now. Start here (Sep 16th, 2024)

Do 100% loans exist in 2024?

You bet they do. And many home buyers can qualify.

Never thought you could buy a home because of tough down payment requirements? Well, a number of mortgage options are available that allow you to finance 100% of the purchase price.

Many first-time home buyers assume 100% loans ceased to exist after the mortgage market downturn late last decade. But some zero-down home loans survived and are still available in 2024.

Check your eligibility for a zero-down mortgage now. Start here (Sep 16th, 2024)

In this article, you will learn about a few of these loan types. You’ll probably be surprised that you can still buy a home with little or no money out of your own pocket.

In this article:

• How to buy a home with no money down
• USDA home loans (0% down)
• VA home loans (0% down)
• FHA home loans (3.5% down)
• 100% financing loans and closing costs
• Our recommended lenders for new home loans

Can you buy a home with no money down?

A major misconception about home buying is that you need a 20% down payment before you can think about becoming a homeowner.

However, a number of government-backed loans offer buyers the opportunity to buy the home of their dreams without putting any money down. These include the zero-down VA loan and the zero-down USDA mortgage. Both options allow no money down, although you will still need to cover closing costs, likely out of pocket — and not everyone is eligible.

Check your eligibility for a zero-down mortgage now. Start here (Sep 16th, 2024)

Why lenders still offer 100% loans

Many new home buyers wonder why most types of loans require a down payment.

After many studies, banks and lending institutions have determined that the higher the down payment on a loan, the lower the chances of the borrower defaulting. In fact, the down payment amount is more important in determining risk than even credit score.

Check your mortgage eligibility. Start here (Sep 16th, 2024)

That’s why, years ago, the standard down payment amount became 20%. Anything less than that requires some kind of insurance, such as private mortgage insurance (PMI), so the lender would get their money back if the borrower failed to pay the loan back.

Fortunately, there are programs for which the government provides insurance to the lender, even though the down payment on the loan is zero. These government-backed loans offer a zero-down payment alternative to conventional mortgages.

How to buy a house with no money down

There are programs that make it possible to buy a home without a down payment, like USDA and VA loans.

Not sure which loan is right for you? It all depends on eligibility.

While FHA loans are available to just about everyone who meets the lending criteria, you need military service history to qualify for a VA loan and you need to be buying in a rural or suburban area for USDA.

Additionally, there are a few other ways to reduce — or eliminate — your upfront costs for a home purchase.

Six strategies to buy a house with no money down

If you want to buy a home with no money down, here are six strategies to consider:

Check your mortgage eligibility. Start here (Sep 16th, 2024)

• Apply for zero down loan: The USDA and VA loan programs offer zero-money down opportunities.
• Use a down payment assistance program: Many cities, states, and counties in the U.S. offer some type of down payment assistance. And there are nationwide programs, too. You just have to dig up what’s available in your area.
• Use gift funds: You can receive gift funds from a family member, non-profit, church, employer, down payment assistance program, or other approved source. Most loan types let you use gift funds to cover the down payment and/or closing costs.
• Ask for lender credits: Lender credits mean that the lender covers your closing costs in exchange for a higher interest rate
• Ask for seller concessions: In this case, the seller would pay your closing costs. Seller concessions can be negotiated as part of your purchase contract.
• Get a second mortgage: If your first mortgage doesn’t cover enough of the upfront funds needed, you may be able to get a second mortgage — like a home equity line of credit — and use that extra amount to cover closing costs.

Using one or more of these strategies, it’s possible that you could buy a home without putting anything down.

100% financing: The USDA home loan

The USDA mortgage loan has been around for years, but it has become more popular recently because it requires zero money down and has lenient credit requirements.

The USDA loan is a government-sponsored loan that exists to help develop rural communities by encouraging home ownership. That’s why this loan type is also known as the rural development loan.

Check your USDA loan eligibility. Start here (Sep 16th, 2024)

To qualify, you need enough income to support your house payment, but it must not exceed the limits established by the USDA.

You also must buy a home that is within USDA’s geographical boundaries. Although the program targets rural areas, many eligible areas are suburban. You might be surprised at how accessible major cities are from USDA-eligible areas. A qualified loan officer can help you determine whether you qualify.

The USDA mortgage even allows the seller to pay your closing costs. With the USDA loan, it could be cheaper to move into a home you buy than to rent the same house.

There is a 1% upfront fee that can be financed into your loan amount and doesn’t have to come out of your pocket. The USDA also charges $35 per month on every $100,000 borrowed as an ongoing fee to make the program viable for future home buyers.

Even with these added costs, USDA loans are a great opportunity to break into homeownership with little upfront costs, and fairly low monthly costs, considering the low interest rates available for this program.

100% financing: The VA home loan

Another mortgage loan that allows you to finance 100% of the home’s cost is the VA home loan. This loan is available to applicants typically with at least two years of former military experience, or 90 days if still serving.

Check your VA loan eligibility. Start here (Sep 16th, 2024)

VA loans have very low rates – usually even lower than conventional loans. And they don’t require a monthly mortgage insurance fee like USDA, FHA or conventional loans.

When compared to any other low down payment mortgage, VA home loans are typically the most affordable – in upfront as well as monthly costs.

You’ll need to pay an upfront VA funding fee but it will almost always be less than the cost of private mortgage insurance — or a down payment.

With a VA loan, you can buy a home with zero down and have the seller pay some or all of your closing costs, meaning you could own a home with no money out-of-pocket.

Lenders typically allow lower credit scores on VA loans as well. While most mortgage lenders require just a 640 score, some allow you to have a score as low as 620.

The VA home loan is the easiest 100% home financing option available.

See if you qualify for a zero-down VA loan here (Sep 16th, 2024)

An FHA home loan can be a zero-down mortgage

Federal Housing Administration (FHA) loans usually require a 3.5% down payment. That’s quite a bit less than 20 percent but can still be a lot of money. For example, on a $300,000 home purchase, 3.5% down is $10,500.

According to FHA guidelines, you can receive a gift for the entire down payment. The gift can be from a family member, non-profit organization, fiancé, or another eligible down payment gift source.

Check your FHA loan eligibility. Start here (Sep 16th, 2024)

So while the loan technically needs a down payment and is not a 100% loan, the effect is the same. If you have a gift source, you don’t have to come up with anything for the down payment (this is also true of conventional loans!).

First-time home buyers receive down payment gifts more often than you might think. There’s a chance that you know an eligible donor who could help you with all or part of the down payment.

Another niche offering from the Department of Housing and Urban Development (HUD) is the Good Neighbor Next Door loan. Teachers, police officers and some other public employees can buy a home with just $100 down. That’s not quite 100% financing, but very close to it.

Why do “no down payment mortgages” exist?

There are a number of options if you’re in the market for no down payment mortgages. The U.S. government wants people to buy homes.

The National Association of Home Builders estimates that homeownership drives between 15-18% of the country’s economy. That’s huge.

Check your mortgage eligibility. Start here (Sep 16th, 2024)

So, Uncle Sam has created ways to buy with zero down, and will even give you a fantastic rate on these loans. No down payment mortgages often come with lower rates than loans that require 20 percent down.

The USDA, FHA and VA loans all come from essentially the same place — government-run organizations that want to spur homeownership.

You might be a renter, but the government doesn’t want you to stay that way for long.

Its mission is to provide the average buyer with low- and no-down-payment loan options. And these government organizations don’t even require that you have a high credit score. Lenient lending lifts the homeownership rate and drives the U.S. economy forward, and is a win for everyone.

No down payment loans for the first time home buyer

As a first-time home buyer, you may not have much to put down on a home.

The key is to find the right loan program or combination of programs.

Check your mortgage eligibility. Start here (Sep 16th, 2024)

If you’re buying outside a major metro area, check into the USDA loan. It’s a no down payment program. You don’t have to be a first-time home buyer to get one, but this is who usually uses it.

If you have a military background, you could be eligible for a loan from the Department of Veterans Affairs. It requires nothing down and rates are typically lower than for FHA.

If you choose a loan program that requires a down payment, look around for secondary programs. Your city, state, or county may provide grants and down payment assistance to help first-time home buyers break into the housing market. Learn more about down payment assistance programs here.

What is the average down payment for a house?

Historically, average down payments for home mortgages have fluctuated in step with home prices, interest rates, and other factors. For decades, the national average for a down payment on a home hovered somewhere around 20%. But down payment averages have dropped over the past decade. As of 2021, the average down payment for first-time buyers is roughly 12%.

Remember that a borrower’s financial situation affects their down payment. For example, a first-time home buyer with little or no money in their bank account might choose a zero-down USDA loan. However, this loan option comes with upfront and monthly fees that drive up the monthly payment.
Another first-time buyer with adequate savings might choose to put 20% down or more, to keep monthly payments low.

In any case, buyers shouldn’t “follow the crowd” when it comes to down payments. They should look at their own situation and discover what’s best for them.

100 percent loans and closing costs

One point to consider when talking about zero-down loans is closing costs. Every time a mortgage loan is opened, there are costs associated with it, such as the appraisal, title, loan processing fees, mortgage points, and more. Someone has to pay these fees.

Check your mortgage eligibility. Start here (Sep 16th, 2024)

Typically, it’s the buyer’s responsibility to pay most of the closing costs. That could range anywhere from $2,000 to $5,000 or more. That’s why some first-time home buyers are surprised when they have to come up with a few thousand dollars, even when getting a 100% mortgage loan.

But there are ways to get around this expense. The most common way is to receive a closing cost credit from the seller.

In some cases, the seller will offer closing cost assistance as an incentive for buyers. It costs the seller money but increases the chances that the home will sell. Talk to your real estate agent about requesting closing cost assistance. It’s not always available, but when it is, it’s a great help to those buying with a 100% financing mortgage.

Zero down home loans are available in 2024

Zero-down financing is alive and well. If you know about the special programs available, you can buy a home with nothing down.

Get a pre-approval for your loan so you can start shopping for a home. In 30 to 60 days, you could be moving into the home you bought with little or no money out of your own pocket.

Check your zero-down mortgage eligibility. Start here (Sep 16th, 2024)

100% financing home loans FAQs

Can I get a mortgage with no money down?

In a word, yes. There types of mortgages are mortgages available where the required down payment is zero. These are often referred to as “100% loans” – loans in which the money lent comprises 100% of a particular home’s market value. Zero-down loans include the government-backed VA and USDA programs.

Should I put 20% down?

You can tap into a zero money down loan. But is it a good idea?

Traditionally, home buyers put down 20% on a home. With today’s home prices, saving up for that kind of down payment is unrealistic for many. But if you have the funds available, putting 20% down can help you avoid costly PMI. Plus, a lower loan amount with the same loan term leads to lower monthly payments.

What credit score do you need for 100 percent financing?

The credit score you’ll need for 100 percent financing varies based on the loan type. For a USDA loan, you’ll generally need a credit score of at least 640 for credit approval. But for a VA loan, some lenders will accept credit scores between 580 to 620.

What is the minimum down payment for a mortgage?

The minimum down payment for a mortgage varies based on the loan type.

With a VA or USDA loan, you might not be required to make a down payment. But for an FHA loan, you’ll need to put down at least 3.5%. And for a conventional loan, you may only have to put down 3%.

Are there zero-down payment mortgage loans?

Yes, there are zero-down payment mortgage loans. Depending on your situation, you may not have to make a down payment for a USDA or VA loan.

Can you get a 100 percent home loan?

Yes, you can get a 100 percent home loan. The two government-backed loan options that offer 100% financing to qualified borrowers include the VA loan and USDA loan.

What type of home loan is the easiest to qualify for?

In general, the FHA loan is considered one of the easiest to qualify for based on its relatively low credit score requirements. However, you’ll need to make a down payment of at least 3.5% to qualify for this loan type.

What is a 100% loan?

A 100% loan provides the entire cost of the home purchase upfront. With that, you won’t have to make a down payment to obtain the loan.

Do banks provide 100 percent mortgage financing?

Yes, many lenders, including banks, offer 100 percent financing for mortgages. Other lenders include credit unions and online lenders.

Is 100 percent financing a good idea?

Whether or not 100 percent financing is a good idea depends on your unique situation. If you want to maintain a cushion of savings in the bank, then 100% financing can allow you to complete your home purchase without depleting your nest egg. With those emergency savings on hand, you’ll be better prepared to handle unexpected expenses that come with homeownership.

But 100 percent financing will lead to larger loan payments. So, make sure that your mortgage payment fits comfortably in your budget before signing up.

How do I apply for down payment assistance?

The first step is to determine which down payment assistance program you are eligible for. For example, you might only find first-time homebuyer programs in your state. Once you find a program, the application should be readily available for you to fill out. Be prepared to provide extensive information about your income.

Do you have to repay down payment assistance loans?

The repayment requirements for down payment assistance loans vary. In some cases, you’ll have to repay the loan alongside your mortgage. In other cases, the debt will be forgiven if you meet certain requirements.

Will using down payment assistance hurt the chances of my offer being accepted?

When using a down payment assistance program, that shouldn’t impact the chances of your offer being accepted. Essentially, this is just a part of your financing contingency. Since most buyers use loans to purchase their homes, it’s not an uncommon thing for sellers to encounter.

How can I buy a house with no money down?

You can buy a house with no money down in two ways. The first is to tap into a zero-down VA or USDA mortgage — both of which are intended to help borrowers buy a single-family home to live in (they cannot be used to purchase investment property). If you don’t qualify for either of those loan types, you can pursue a no money down mortgage through a combination of a low down payment mortgage and a down payment assistance program.

Are there home buyer grants?

Yes, home buyer grants are available in every state. Although you’ll need to meet certain eligibility requirements, a home buyer grant could open the door to homeownership.

Can cash gifts be used as a down payment?

Yes, you can use a cash gift as a down payment on a home. However, you’ll need to provide documentation on the source of the gift and receive it as a check or wire transfer. The lender will require a gift letter from the benefactor that clearly states the money is not a loan. If the gift involves repayment, lenders generally won’t accept that as a down payment.

What are FHA loan requirements?

The Federal Housing Administration offers FHA loans with low down payment options. You’ll need to make a 3.5% minimum down payment with a credit score of 580 or higher.

Beyond the down payment, you’ll need documentation of a stable income and a mortgage amount within the FHA’s loan limits. Plus, you must intend to use the home as a primary residence.

What are the benefits of a bigger down payment?

When you make a bigger down payment, there are many benefits. The smaller loan amount will lead to smaller monthly payments. Plus, you can potentially avoid private mortgage insurance (PMI) that increases your monthly payments.

If I make a low down payment, will I have to pay mortgage insurance?

In general, you’ll have to pay mortgage insurance when you make a down payment of less than 20%. However, that’s not always the case. For example, when you use the VA loan, you won’t have to pay private mortgage insurance regardless of your down payment amount.

If I make a low down payment, what will my lender fees be?

When you make a low down payment, you’ll be taking on a larger loan. Since most lenders base their fees on the loan amount, you’ll pay more fees when you make a lower down payment.

How can I fund a down payment?

A down payment is a major expense. You can fund it by building up savings in a savings or checking account. If you are selling an existing home, you could use the proceeds from that sale as a down payment on your new place. Other options include down payment assistance programs, gifts from family, or borrowing from your retirement accounts.

How much home can I afford?

The amount of home you can afford is a complicated question. Although your lender will determine how much they are willing to lend you, that’s not necessarily how much your monthly budget can afford.
So, take some time to comb through your budget to determine what size mortgage payment you can comfortably afford. From there, use one of the many calculators to help you determine an ultimate purchase price based on the currently available annual percentage rate you expect.

Check your zero-down mortgage eligibility. Start here (Sep 16th, 2024)

The post 100% Financing Home Loans 2024 (USDA, VA, FHA) first appeared on My Mortgage Insider.

But not every home — and not every borrower — will be eligible for this loan program.

To apply for a USDA loan with no money down, you’ll need to meet income eligibility rules, and you’ll need to buy a home in an eligible rural area.

Check your eligibility for a USDA loan. Start here (Sep 16th, 2024)

In this article:

• What is the USDA loan program?
• Who is eligible for a USDA loan?
• USDA home loan requirements
• USDA loans and mortgage insurance
• How does the USDA loan compare to other loan types?
• Other differences between USDA and other loans
• USDA home loan FAQs
• Our recommended USDA lenders

What is the USDA loan program?

The U.S. Department of Agriculture (USDA) operates two home loan programs to help low- and moderate-income families in rural areas become homeowners.

Here are the types of USDA home loans for buying existing homes:

• USDA Guaranteed Loan Program: Mortgages issued through this program actually come from private lenders. The USDA’s role is to guarantee mortgage loans. That way, moderate-income borrowers can get lower mortgage interest rates and make no down payment
• USDA Direct Loan Program: The USDA itself issues these mortgages to low-income applicants with standard fixed interest rates of 4% — and rates as low as 1% for some borrowers

These loans help individual borrowers, but they also help rural communities by increasing the demand for single-family housing, sparking economic development

Since its inception in 1949, the USDA Rural Development loan has helped millions of Americans buy housing with little or no money down.

Check your eligibility for a USDA loan. Start here (Sep 16th, 2024)

Who is eligible for a USDA home loan?

Not everyone can apply for a USDA loan. That’s because, unlike FHA loans and conventional loans, USDA loans have eligibility requirements that include rules about location and income.

Here’s how these limits work:

USDA Guaranteed Loan Income Limits

USDA Guaranteed loans are available to “moderate” income earners, which the USDA defines as those earning up to 115% of the area’s median income.

For instance, a family of four buying a property in Calaveras County, Calif., can earn up to $104,650 per year and still get a Guaranteed Loan. If the family earns more, it’ll be ineligible to apply.

Income limits vary by ZIP code and household size. Look up your area here. Typically, moderate earners find they are well within limits for the program.

Keep in mind, the USDA considers all the household income — not just the borrowers’ income. For instance, a family with a 17-year-old child who has a job will have to disclose the child’s income for USDA eligibility purposes.

The child’s income won’t affect whether lenders approve the borrower — just whether the household is eligible to apply for the USDA program.

Check your eligibility for a USDA loan. Start here (Sep 16th, 2024)

USDA Direct Loan Income Limits

USDA Direct Loans — which come directly from the USDA instead of from a private lender — enforce lower income limits than Guaranteed Loans.

For example, that same four-person household in Calaveras County, Calif., must earn $72,000 or less a year to get a Direct Loan.

Look up your area’s income limits here. When you find your county or city and your household size, look for its “low income” number. That’s the number Direct Loans use. (Guaranteed Loans use the “moderate income” number.)

USDA Mortgage Eligible Geographic Areas

To use USDA financing, your new home must be located in a USDA-eligible area. You can search USDA’s maps to browse certain areas or pinpoint a specific address. Just enter the home’s address in the search bar.

More locations than you might think are USDA-eligible. In fact, about 97% of the United States’ land mass is eligible, representing about 110 million people. Some properties in suburban areas outside large cities may be eligible for USDA financing. It’s worth checking, even if you think your area is too developed to be considered “rural.”

The USDA eligibility maps are still based on population statistics from the Census in the year 2020. Maps can change as population data changes.

Check your eligibility for a USDA loan. Start here (Sep 16th, 2024)

Upcoming Eligible USDA Map Changes for 2024

The USDA eligibility map changes with each Census every 10 years. The eligibility map can also change between Censuses as the USDA considers local and state population studies.

Because of these changes, it’s possible an area may appear eligible on the map even though it’s no longer eligible for USDA loans.

To determine, for certain, whether a home is still eligible before starting the application process, check with a USDA loan officer here.

USDA Home Loan Requirements: Eligibility vs Qualifying

The geographical and income requirements we’ve discussed so far determine who can apply for a USDA loan. They don’t determine whether applicants get approved for the loan.

Borrowers who are eligible for USDA borrowing still have to qualify for the loan by going through their lender’s underwriting process. Their income, debt-to-income ratio (DTI), and credit score will help determine whether their loan application qualifies.

Likewise, the home itself will have to qualify by falling within the USDA’s loan limits and by meeting the agency’s property guidelines.

Here are some details about qualifying:

Credit Score Requirements – Updated for 2024

The USDA recommends private lenders who underwrite no-money-down Guaranteed Loans accept credit scores of 640 or higher.

But lenders have some leeway here: They could allow a borrower with a 630 credit score, for example, if that borrower’s application is strong otherwise. Or they could require borrowers to have a credit score of 680 if the borrower’s loan file shows weaknesses.

For Direct Loans, the USDA itself is the lender. The government agency doesn’t set a minimum credit score requirement, but it will make sure borrowers can afford the loan payments before approving the loan.

Debt-to-income ratio (DTI) maximums – Updated for 2024

Borrowers have to prove they can afford the loan’s monthly mortgage payments. This proof comes from comparing the borrower’s income to the borrower’s existing debt load. Lenders call this comparison a debt-to-income ratio, or DTI.

For example, someone who earns $5,000 in gross monthly income and owes $2,000 a month in debt payments — including the new house payment — has a DTI of 40%. A 40% DTI is just low enough to qualify for a USDA Guaranteed Loan. Lenders typically won’t allow DTIs higher than 41%.

For Direct Loans, the USDA, acting as a lender, doesn’t use terms like DTI. But, again, the USDA will make sure borrowers can afford their monthly payments.

Check your eligibility for a USDA loan. Start here (Sep 16th, 2024)

USDA loan limits – Updated for 2024

USDA loans must fall within maximum loan limits for the area. This map will show your area’s maximum loan size for a no-money-down USDA Guaranteed Loan.

Once again we’ll look at that family of four in Calaveras County. That family could get a loan as large as $766,550. Loan sizes vary a lot by location since house prices vary so much by location. In San Francisco County, for example, a USDA Guaranteed Loan could reach up to $1,149,825.

USDA property requirements – Updated for 2024

Homes financed through the USDA loan program must meet the USDA’s requirements for the condition of the property. This excludes most fixer-uppers. The home must:

• Be structurally sound
• Be free of environmental hazards like lead paint
• Have access to water and electricity
• Have a working HVAC system
• Have a working plumbing system
• Have a roof that will last at least two more years
• Have windows and doors that open and close

A USDA appraiser will visit the home to make sure it meets the USDA’s property eligibility rules.

A home that doesn’t meet the USDA’s property requirements may still be eligible for a USDA Rehab Loan. This program can roll the home’s purchase price and its renovation costs into one loan.

USDA loans and mortgage insurance

Most borrowers have to pay for mortgage insurance to get their mortgage approved. Mortgage insurance protects the lender in case the borrower quits making payments and defaults on the loan.

Officially, USDA loans do not require mortgage insurance. But they require something very similar that serves the same purpose: The USDA Guarantee Fee.

About the USDA Guarantee Fee

The USDA Guaranteed Loan Program guarantees the lender it won’t lose money on your loan. (‘Guaranteed’ does not mean that every borrower’s approval is certain; the guarantee is for the lender.)

But this guarantee still helps the borrower. Backing from a government agency removes much of the risk from the loan and allows banks and mortgage companies to offer a zero-down loan at incredibly low rates.

Borrowers pay for this guarantee through the USDA Guarantee Fee which charges 1% of the loan amount upfront and 0.35% of the loan amount each year.

The annual fee is paid monthly in 12 equal installments. For each $100,000 borrowed, the upfront fee is $1,000 and the monthly premium is $29.

The borrower can roll the upfront fee into the loan amount or pay it out of pocket. Compared to other loan types like FHA, or the private mortgage insurance (PMI) on conventional loans, the USDA mortgage insurance fees are among the lowest.

How do USDA loans compare to FHA or conventional loans?

Most home buyers use conventional or FHA loans instead of USDA loans to buy new homes. Which loan type is better?

How USDA loans compare to conventional loans

The federal government cannot guarantee lenders won’t lose money on conventional loans. Because of this, loan approval depends more on the borrower’s credentials.

So, borrowers who have a big down payment, a high credit score, and a low debt-to-income ratio can often get a good interest rate on a conventional loan. This can save money because conventional borrowers don’t have to pay the Guarantee Fee, and they’ll have more flexible loan options.

But borrowers who struggle to qualify for a conventional loan will usually pay higher interest rates and higher mortgage insurance premiums. These borrowers can often save money with a government-backed loan program like USDA despite its fees and regulations.

Conventional lenders do add a private mortgage insurance premium (PMI) each year but no upfront fee. This annual PMI rate varies by borrower and won’t be charged on loans with 20% or more down.

How USDA loans compare to FHA loans

Like USDA loans, FHA loans have the backing of a government agency. In this case it’s the Federal Housing Administration that insures private mortgage lenders, allowing more affordable borrowing.

Unlike USDA loans, FHA loans have no income or geographic rules. Just about anyone can apply.

FHA loans are particularly good for borrowers with lower credit scores. Someone with a score as low as 580 could still get FHA approved with a down payment of 3.5%. (Borrowers with credit scores as low as 500 must pay 10% down, and not every lender will approve such a loan.)

Compared to the USDA’s credit score limit of 640, the FHA’s rules can be a game changer.

And along with more relaxed credit score requirements, FHA loans also feature more relaxed debt-to-income ratio rules. Some lenders may approve borrowers with DTIs as high as 50%.

However, FHA borrowers pay higher fees: 1.75% upfront and 0.55% annually for most new borrowers.

Other differences between USDA loans and other loans

Here are some other differences between USDA and other loan types:

USDA requires zero down (100% financing)

USDA loans can finance up to 100% of a home’s purchase price. That’s a huge pro that only the VA loan program for veterans can match.

For example, FHA loans require a minimum of 3.5% down payment, adding thousands to upfront expenses. Conventional loans can go as low as 3% down. The USDA’s no-money-down feature has allowed many people to buy a home who would otherwise be locked out of homeownership.

Check your eligibility for a USDA loan. Start here (Sep 16th, 2024)

USDA loan length

The USDA Guaranteed loan offers just two mortgage choices: 15- and 30-year fixed rate loans. Adjustable-rate loans are not available through the USDA. USDA Direct loans offer 33- and 38-year fixed-rate terms, which can lower monthly payments.

FHA and conventional loans offer a wider variety of fixed and adjustable-rate loans. Shorter terms, like a 10- or 12-year loan, require higher payments but charge less interest over time.

USDA mortgage rates

USDA loan rates often come in below conventional and FHA loans. Only VA loans, which only veterans and active duty military members can access, come in consistently lower.

The USDA’s backing — combined with the program’s higher credit score requirements — allows for lower rates.

Still, mortgage rates vary by borrower, lender, and home. Everybody’s rate is personal. Comparing different lenders and loan types should help you find your best deal.

Check your USDA interest rates. Start here (Sep 16th, 2024)

Closing Cost Options

USDA loans allow the seller to pay for the buyer’s closing costs, up to 3% of the sales price. Borrowers can also use gift funds from family members or qualifying non-profit agencies to offset closing costs when they supply this downloadable USDA gift letter signed by the donor.

USDA loans also allow borrowers to open a loan for the full amount of the appraised value, even if it’s more than the purchase price. Borrowers can use the excess funds to pay closing costs.

For example, a home’s price is $250,000 but it appraises for $255,000. The borrower could open a loan for $255,000 and use the extra funds to finance closing costs.

Asset Requirements

Borrowers who don’t have all their closing costs paid for by the seller, or by assistance programs, will need cash to close the loan. They will need to prove they have adequate assets. Two months of bank statements will be required.

There’s also a requirement that the borrower must not have enough assets to put 20% down on a home. A borrower with enough assets to qualify for a conventional loan without PMI will not qualify for a USDA loan.

Check your eligibility for a USDA loan. Start here (Sep 16th, 2024)

One of the Best 100% Financing Options

No-money-down loans are often misleading. In exchange for paying no money down the borrower pays more in interest and fees over time.

Not so with USDA loans. Borrowers can pay nothing down and still get a competitive interest rate and low annual fees.

Anyone looking for a home in a small town, suburban or rural area should contact a USDA loan professional to see whether they qualify for this program.

USDA Home Loans FAQs

Is FHA better than USDA?

For borrowers who want to pay 0% down, USDA loans are better than FHA loans. For borrowers with lower credit scores — as low as 580, FHA loans are better. For borrowers who can afford a large down payment and have a strong credit profile, a conventional loan could be best.

Is it hard to get a USDA home loan?

Borrowers who meet USDA income rules and who live in a USDA-designated rural area are eligible to apply for a USDA loan. Getting approved for the loan usually requires a credit score of 640 or higher, a debt-to-income ratio of 41% or lower, and a reliable source of income.

How long does it take to get approved for a USDA loan?

USDA loan approval times resemble other loan types. Most loans close in 40 to 50 days. Applicants who respond to their loan officer’s questions quickly can speed up close times.

I’m looking to buy a home in a suburban area. Should I still look into USDA financing?

Yes. Many suburban areas across the country are eligible for a USDA loan. Complete a short online questionnaire to find out if your area is eligible.

I thought USDA home loans were only for farms?

That’s a different USDA program. A USDA home loan cannot be used to finance the purchase of an income-producing farm. In fact, homes with low acreage may be more suitable for the program, since USDA may not allow a home if its land value is more than 30% of the total value of the home.

Are USDA Loans Some Obscure Loan Type That No One Actually Uses?

No. Thousands of home buyers use USDA financing each year. These mortgage loans are getting more popular all the time. Below is a map of how many loans were completed in each state in 2015.

Data: CFPB

Does USDA offer a Streamline Refinance program?

Yes. To qualify, the borrower must already have a USDA loan and must live in the home as a permanent resident. The new loan is subject to the standard upfront and annual Guarantee Fee, just like purchase loans. Refinancing borrowers must qualify using current income but may qualify with higher ratios than generally accepted if the payment is dropping and they have made their current mortgage payments on time. If the new upfront fee is not being financed into the loan, the lender may not require a new appraisal.

Can I get a construction loan with USDA?

Homebuyers who wish to build a home with a USDA loan can do so using the USDA construction loan program which combines a construction loan and a traditional 30-year fixed USDA loan into a single-close loan.

Can I buy a new construction home with a USDA mortgage?

Yes. In fact, a new home should meet USDA minimum standards even more easily than will an existing home. Many housing developments are going up in USDA-eligible areas, making this loan a great choice for new homes.

Check your eligibility for a USDA construction loan. Start here (Sep 16th, 2024)

Does USDA require the property to be in good condition?

Generally, yes. The appraiser will state in the appraisal report whether or not the property conforms to minimum standards, which are the same property requirements needed for an FHA loan. Make sure your lender selects an FHA-approved appraiser who can verify the property meets FHA standards.

Can I buy a vacation home with a USDA loan?

USDA loans are intended for the purchase of a primary residence. This type of housing loan cannot be used to purchase a second home.

Can I buy a condo or townhome with a USDA loan?

Yes, however, the lender has to confirm that the condo or townhome meets FHA, Fannie Mae, Freddie Mac or VA requirements. The lender assumes a lot of liability by certifying that a condo project meets these requirements, so they may not be willing to approve a USDA loan for a condo or townhome.

Can I buy a manufactured home with a USDA loan?

USDA typically allows buyers to purchase new manufactured homes only. While pre-existing manufactured homes are typically not allowed, they may be acceptable if the current owner has a USDA home loan on the property. Ask your real estate agent for this information.

New manufactured homes must meet certain thermal performance standards and be permanently affixed to a foundation. It also must have a minimum living space of 400 square feet. A buyer who is interested in a manufactured/mobile home should check with their real estate agent and lender about whether the home is USDA-eligible.

Are USDA home loans only for first-time homebuyers?

No. Buyers who have purchased before may use the USDA program. However, borrowers usually have to sell their current home or prove it’s either too far away from their work or otherwise is no longer suitable.

Check your eligibility for a USDA loan. Start here (Sep 16th, 2024)

Does USDA allow gifts to help with closing costs?

Yes. Gifts can be used provided they are from a relative, charitable organization, government entity, or nonprofit. In some cases, a gift from a friend can be used if proof of the relationship prior to the loan transaction can be established. Applicants receiving a gift will need to complete USDA’s gift letter form. Download the form here.

What’s the minimum credit score allowed for a USDA loan?

USDA grants the highest approval levels to those with a 660 score and above, but the USDA’s recommended minimum credit score is 640.

I have no credit. Can I get a USDA loan?

Borrowers who don’t have an established credit history may be able to qualify for a USDA loan. At least 4 non-traditional sources will be needed, such as:

• Rental history
• Utility payment records
• Insurance payments

Can I finance my funding fee even though my LTV will be more than 100%?

USDA does not consider the Guarantee Fee as part of its loan-to-value (LTV). So in essence, USDA allows for an LTV of a little over 101%.

Why doesn’t every buyer use the USDA home loan program?

Most homebuyers would prefer to do a USDA loan, but perhaps the areas in which they are looking are not USDA-eligible. Larger urban and surrounding areas are not eligible, since the point of the program is to encourage rural development. Still, a surprising number of developed suburban areas are still eligible.

Apply for USDA here

USDA home loan rates are low and free quotes are available now. Check your eligibility for this program and find out about USDA-eligible areas near you. Complete a short online request form to get started.

Check your eligibility for a USDA loan. Start here (Sep 16th, 2024)

The post USDA Home Loans | Requirements & Qualifications 2024 first appeared on My Mortgage Insider.

Check your home buying eligibility. Start here (Sep 16th, 2024)

Is getting a land loan the same as a home mortgage?

Well, there are some big similarities and some differences, says Jim Nowak, regional vice president and sales & customer rel ations for the Mid-East Region of GreenStone Farm Credit Service in East Lansing, Mich. Independently owned Farm Credit Service (FCS) offices across America and Puerto Rico help rural communities with loans and leases. For those getting land loans, the FCS can help people wanting just a single lot or thousands of acres.

Land loans can be purchased with cash or through seller financing, bank financing or an equity loan or equity line of credit secured by your existing home. Also, the U.S. Department of Agriculture offers a program for low-income borrowers called Section 502 direct loans. These loans allow people to buy property with plans to make improvements needed and to add a house to the lot.

“When you are looking at a mortgage as opposed to a vacant land loan, the first thing that is different from a financial institution’s perspective is that a land loan or vacant lot loan is a little bit more risky,” Nowak explains. “There is no home on the lot for collateral, which is what a regular home mortgage takes into consideration. So that means that the interest rates will be a little higher on a vacant land loan.”

Check your home buying eligibility. Start here (Sep 16th, 2024)

Land loans are riskier

Nowak explains that banks believe these loans are riskier because of scenarios such as this a family is encountering challenging financial times. If they own a 10 acre piece of land somewhere across town in hopes to someday build their dream house but they are living in their current home, they most likely will stop paying on that land and not their house, he explains.

“Throughout time in history, banks have viewed vacant land not as comfortable on their portfolio,” Nowak says.

When it comes to the higher interest rates to help with the fear of defaulting, banks and other lenders have their own varying scales. But he said many times a land loan will be at least 1% – 1.5% more than just getting a mortgage for an existing home.

“We have many people who come to us and don’t even realize there are loans out there for vacant land. Some think that to buy a home site before you build on it, that you need to pay cash for that,” he says. “That’s not the case. Loans for vacant land at Farm Credit is what we specialize in.”

It doesn’t matter if someone is buying the land for hunting, fishing or to eventually build a house, the land loan would be the same.

As far as the terms for a land loan, many banks and financial institutions do not offer 30 year loans like they would for a home mortgage. It’s best to check with your lender to see they type of terms and interest rates being offered for vacant land.

“The banks usually will offer a 5-year adjusted rate mortgage with a balloon payment at the end,” Nowak states. “But at GreenStone, we actually will finance a land loan on a 30-year fixed term. That’s the niche we have. It’s very, very rare. But we’ve been doing it since I’ve been around for 12 years.”

He says after doing it for 100 years, the FCS feels comfortable financing land since the organization has been doing it for 100 years and taking land as the collateral. And it doesn’t matter if it’s just one small lot or 200 acres.

However, the terms are different for farmers not potential housebuilders.

“We, generally speaking, will fund 65 loan-to-value — meaning customers put down 35% of the purchase price, and generally, the term will be at 20 years. There certainly have been exceptions made, and we have gone to 25 and 30 year fixed terms for farmland,” Nowak says.

When someone wants to purchase a vacant piece of land or even a small two acre lot, those are the parcels that will go up to 30 year terms, he says. If it is a very large purchase, the FCS credit department would rather like to have 25 years plus 20% down on most vacant land.

Similarities of a land and home loans

“Underwriting is one of the things that is very similar when you talk about home mortgages and vacant land,” he adds. “We collect the same financial information, and we still have to get title work and appraisals done. Those are the similarities.”

In Michigan and in many parts of the country, a land loan – especially if it will eventually be a home site (which is classified under 10 acres) — lenders require a percolation (or perc) test to determine the absorption rate of soil so a septic system can be placed there and a home built on that land.

Other differences of home mortgages and vacant lot loans can save you some bucks. For instance, there are no insurance requirements when you buy vacant land, Nowak says. However, when you have a home mortgage, every financial institution will expect you to get property insurance on the home to protect both you and the bank if disaster should hit.

“Also, most financers will expect the borrower to get mortgage insurance if they put down less than 20%. With vacant land, there is no such thing as mortgage insurance or PMI,” he says. “That can save you a lot of money.”

Check your home buying eligibility. Start here (Sep 16th, 2024)

The post Differences And Similarities Between Land Loans And Home Mortgages first appeared on My Mortgage Insider.

As an added bonus, the USDA loan is eligible in many suburban areas. Every ten years, USDA examines its eligibility maps to make sure it is still serving rural areas, based on the most recent national census. Yet, USDA maps are still based on the census taken in the year 2000. The USDA eligibility map changes have been delayed until October 1, 2015.

This is a golden opportunity for borrowers who live in suburban and rural areas alike to take advantage of the USDA loan’s many benefits. Due to delayed updates to the USDA eligibility maps, cities and towns near major metropolitan areas are still eligible, even though their populations have exceeded USDA’s definition of “rural.”

Check your eligibility for a USDA loan. Start here (Sep 16th, 2024)

USDA home loan activity by state

The USDA home keeps gaining steam. Nationwide, home buyers used the USDA home loan nearly 130,000 times in 2013 according to the CFPB, up from 120,000 in 2012. But use of this loan program varies widely by state according to data released by USDA.

It turns out that North Carolina currently holds the title as USDA home loan leader, both in number of loans funded and dollar volume.

Between 2009 and 2013, nearly 36,000 USDA loans were funded in North Carolina for a total of almost $5 billion.

Other states showed nearly as strong numbers during this four year period. Here are the top five states by number of USDA home loans:

1. North Carolina: 35,898 USDA loans
2. Texas:                  35,225 USDA loans
3. Michigan:           34,065 USDA loans
4. Florida:               31,844 USDA loans
5. Louisiana            27,457 USDA loans

Rounding out the top ten USDA states are Missouri, Tennessee, Illinois, Indiana, and Pennsylvania.

USDA loans are popular in every state, but these ten states are especially USDA friendly due to large populations near USDA-eligible areas. For instance, suburbs around Austin, Texas, Orlando, Florida, and Charlotte, North Carolina are eligible. Home buyers can receive a zero-down loan with an incredibly low mortgage rate, and still be within commuting distance of major employment centers. This combination is the perfect storm for high USDA activity.

Buyers are snapping up homes in USDA-eligible areas while home prices are low and USDA loan rates are at historic lows.

Check your USDA mortgage rates. Start here (Sep 16th, 2024)

USDA loans by dollar volume

Looking at the top ten states by the total USDA loan dollar volume reveals a slightly different list of states. North Carolina is still king, but California squeezes into the #5 spot, edging out Michigan, no doubt due to its higher property values.

1. North Carolina:  $4.93 billion
2. Texas:                   $4.56 billion
3. Florida:                $4.07 billion
4. Louisiana:           $3.90 billion
5. California:           $3.57 billion

The #6 through #10 spots are filled by Michigan, Washington State, Tennessee, Pennsylvania, and Missouri. The grand total for all 50 states between 2009 and 2013 is nearly $87 billion in USDA loans funded.

USDA home loan advantages

Many home buyers assume that zero-down financing such as the USDA loan is incredibly difficult to qualify for. But that is not the case at all. USDA loans are on par with FHA as far as qualification standards, and are even easier to qualify for than conventional loans that require 20% down.

A USDA loan is more affordable than FHA when it comes to monthly mortgage insurance. USDA requires a 0.50% fee annually, or $42 per month for every $100,000 borrowed. FHA however charges 1.35% per year, or $112 per $100,000.

In addition, borrowers with lower credit scores may be approved more easily. Buyers with a 640 credit score are eligible for a USDA home loan. Those with at least a 660 score can qualify even easier.

It’s no wonder that the USDA home loan remains a popular choice for buyers in all 50 states.

Apply for a USDA loan

Home buyers who are curious about USDA loans should contact a lender who specializes in these loans. While the program is administered by the United States Department of Agriculture, private banks and mortgage companies take the application and underwrite the loan according to USDA’s standards.

Check today’s USDA loan rates here. Find out if your city or town is USDA-eligible and if you qualify. USDA loan rates are low and it is a great time to buy a home using this incredible zero-down program.

Check your eligibility for a USDA loan. Start here (Sep 16th, 2024)

The post USDA Home Loans Popular in All 50 States as Buyers Enjoy 14-Year-Old Eligibility Maps first appeared on My Mortgage Insider.

Click here for a free USDA home loan rate quote (Sep 16th, 2024)

What Is A USDA Guaranteed Loan?

The guaranteed loan is just one of two types of loans designed to encourage rural development that is offered through the USDA.

The other USDA mortgage is a direct loan for very low-income households. They are made directly from the government and can be subsidized to as low as 1 percent interest rate.

However, the guaranteed loan is not subsidized and does not require a Congressional appropriation every year, says Joaquin Tremols, director of the USDA Rural Housing Service’s Single Family Housing Guaranteed Program in Washington, D.C. And recipients can still get a good interest rate.

“You have to apply with an approved lender. They take our training before we cut them loose,” he says.

Eligible applicants can use the guaranteed loans to build, rehabilitate, improve or relocate a dwelling, too, besides just buying a home in an eligible rural area. And you might be surprised what real estate meets the USDA loan program property requirements. Many suburban areas close to big cities qualify.

Because the program is backed by the U.S. Department of Agriculture, this loan program can help qualifying home buyers to avoid mortgage insurance (PMI).

How much USDA loan can I qualify for?

Unlike the FHA program, there are no loan limits for the USDA loan program. Because the program is intended to help low and moderate-income borrowers become homeowners, there are income limits for borrowers but no limits on the loan amount itself. Instead, the size of your loan is determined by the specifics of your financial situation — and the area where you’re buying.

If your monthly income is below the income limit for the area and your financials indicate an ability to make your mortgage payments, you will probably be approved.

The size of USDA loan you can qualify for will be determined by your credit history, debt-to-income ratio, assets and saving, and monthly income.

Click here for a free USDA home loan rate quote (Sep 16th, 2024)

Who Is Eligible for A USDA Loan?

According to the USDA Single Family Home Loan handbook, applicants may be eligible to receive a guaranteed loan if they

• Meet income eligibility
• Agree to personally occupy the dwelling as their primary residence
• Are U.S. citizens, U.S. non-citizen nationals, or qualified aliens
• Have the legal capacity to incur the loan obligation
• Have not been suspended or debarred from participation in Federal programs
• Are purchasing a property that meets all program criteria

USDA Income Geographic Differences

Being approved as income-eligible can be tricky because so many things are included in the figure. Plus, the income limits are different depending on where you live. Let’s start with two examples of the difference in income limits from opposite sides of the country.

If you were looking to buy a house in the rural areas of Buffalo, N.Y., with a USDA moderate guaranteed loan and a four-person household, you could have an income of $77,850. For families of five or more, that figure goes up to $102,750.

If you travel across the U.S. to an expensive area of San Jose, California, the four-person household income limit is $122,050 and jumps to $161,100 for five or more people.

According to the USDA loan program, moderate-income typically means you make 115 percent or less of the median income for your geographic region. As a basic example, if families average $50,000 per year in your area, your family can make up to $57,500 per year and still be eligible.

Income limits vary widely and tend to rise significantly around major metro areas.

Those interested in the USDA loan can easily check their income eligibility here.

The USDA website also details property eligibility in areas all across the country.

“You can punch in an actual property address — in case you were looking at a certain home — and submit the information. It will tell you if it’s in the USDA loan rural area. It’s pretty nifty,” Tremols says.

If your income meets these requirements and you’re looking to buy in a qualifying area, then the zero-down USDA loan program can be an attractive loan option — especially for first-time homebuyers.

What Counts as Income According to USDA?

As for income eligibility though, the government counts income from all adults in the household who are 18 or older — not just parties who are signing the mortgage loan. Their income must be included in the annual income for eligibility purposes, according to the USDA guaranteed loan handbook.

For instance, the Social Security checks received by your mother-in-law who lives with you will also go towards that income eligibility. You also will have to count up to the first $480 of earnings for any children, including full-time college students even if they live away from home temporarily during the year.

Click here for a live USDA rate quote (Sep 16th, 2024)

Other counted income includes:

• Employee housing or automobile expense allowances
• Military and self-employed income
• Alimony/child support
• Pension/retirement income
• Rental income
• Disability/social security checks
• Unemployment compensation

Income that Doesn’t Count Toward Your Eligibility Income

There are some income types that will never be counted, according to the handbook.

Income that is not considered toward your household total, for eligibility purposes, includes

• Payments received for the care of foster children or foster adults in the home
• Earned income of a minor
• Employer-provided fringe benefit packages, even if displayed on the applicants’ pay statements
• Section 8 housing vouchers
• Any student financial aid, including student loans
• Money gifts of money or lump sum inheritances, capital gains or insurance payments under health, accident or worker’s compensation policies

Lenders can help potential buyers find deductions for their annual income to meet the eligibility requirements, Tromels says.

“Some people do benefit from these deductions,” he says. “The handbook shows many various examples in the handbook.”

USDA Income Eligibility Deductions

According to the USDA mortgage underwriting guidelines, the allowable deductions to determine an adjusted income can include:

• $480 for each minor child under 18
• $480 for each disabled or handicapped individual who is not the applicant or co-applicant on the loan
• $480 for each full-time student 18 years or older
• $400 for each elderly (62 years of age or older) or disabled applicant
• Total amount of medical expenses for any elderly family member that exceeds 3 percent of gross annual income
• Actual cost of child care for children 12 years and younger with full documentation of cost

“People like this loan because there is no down payment, and there is 100 percent financing,” Tremols says. “They are all simple 30-year fixed loans with no balloons, no interest-only or adjusted interest rate.”

Show me today's USDA home loan rates (Sep 16th, 2024)

Qualification and Income Eligibility are Different

Remember that your total household income for eligibility purposes could be different than your qualification income. For instance, an elderly parent who will live in the home might have a job and earn income. For eligibility purposes her income counts, but you can’t count that income toward the income on your loan to help you qualify unless the elderly parent is on the loan.

Check Your USDA Income Eligibility

USDA income eligibility is lenient in that families can make up to 115% of the typical income for the area and still qualify. Prospective home buyers should check all the requirements with an approved USDA lender to see if they are buying in an eligible area — and whether they qualify.

Click here to check your USDA eligibility now (Sep 16th, 2024)

The post USDA Income Eligibility | How Much Can You Make and Get a USDA Home Loan? first appeared on My Mortgage Insider.

Many home buyers believe they need a 20% downpayment to buy a home. This misconception could stop buyers before they start, and cost them years of building wealth and home equity through homeownership.

A recent survey by Wells Fargo found that 44 percent of U.S adults believed lenders require 20 percent down to buy a home.

Yet all major loan types available today allow for a downpayment of less than 5 percent.

Homebuyers are surprised to learn that these mortgage programs exist and that they are probably eligible for at least one of them.

Click here to check your home buying eligibility now (Sep 16th, 2024)

These loans require little or no down payment

There are four major types of mortgages and none of them require 20% down or even close to it. Nearly all home buyers in today’s market opt for VA, USDA, FHA, or conventional financing. These are widely available programs available at virtually every lender.

If you are considering buying a home with little or no downpayment, you are not alone. The number of homeowners who purchased homes with low downpayment loans have been steadily increasing for the past five years according to the Wall Street Journal.

In 2019, according to Porch.com, over half of Millenial and Gen X home buyers made a down payment of less than 10% when buying their homes. Even 19% of boomers made down payments of less than 10%.

The uptick is due in large part to a reduction in the cost of mortgages offered by the Federal Housing Administration (FHA), which can approve loans to borrowers with less-than-perfect credit.

Mortgage rates are low and low- and no-downpayment mortgages are available from mortgage lenders in your city or town. Often, new homebuyers who contact a mortgage company to find out their options walk out with a pre-approval letter. They can then take this letter and make a serious offer on a home, years sooner than they first believed they could.

Today’s mortgage market offers an array of easy-to-access programs that are suited for home buyers from almost every background and economic standing.

Click to check today’s rates (Sep 16th, 2024)

FHA loan: 3.5% down payment

The FHA loan allows a downpayment of just 3.5 percent. The Federal Housing Administration (FHA) administers the program and insures lenders who issue the loans. This keeps FHA loan rates some of the lowest of any loan type.

FHA loans are common among first-time home buyers. The purpose of this loan since its creation in 1934 has been to facilitate homeownership for those who would not qualify for other loan programs. The FHA has a minimum credit score of 580, which means borrowers with lower credit scores can qualify. FHA mortgage approval standards are considered to be the most friendly toward first-time buyers.

Click to check your FHA home buying eligibility (Sep 16th, 2024)

Conventional 97 loan: 3% down payment

The Conventional 97 is a 3% downpayment program available to home buyers with higher credit scores than FHA requires. Conventional mortgages are ones that lenders can sell to Freddie Mac or Fannie Mae after closing.

The advantage with this program is the cancellable private mortgage insurance (PMI). FHA loans require mortgage insurance payments for the life of the loan in most cases.

Conventional loans, including the Conventional 97, allow you to remove the mortgage insurance when you reach 20% equity. This loan could work for home buyers who plan to pay down their principal balance quickly to eliminate the extra cost of PMI.

HomeReady loan: 3% down payment

The HomeReady™ mortgage is another type of conventional 3% downpayment program. HomeReady™ was designed to help multi-generational households get approved for mortgage financing. Backed by Fannie Mae and available from nearly every U.S. lender, the HomeReady™ mortgage offers below-market mortgage insurance costs and the most innovative underwriting idea in more than a decade.

Borrowers can use many non-traditional income types to help them qualify, including rental income from a mother-in-law unit, roommate income, and even income from a non-borrowing household member.

This program will open up homeownership possibilities to a wider array of families.

VA loan: 0% down payment

The U.S. Department of Veterans Affairs (VA) insures VA loans, allowing lenders to approve loans at zero down payment. The program is available to current and former members of the U.S. military and surviving spouses.

VA mortgage rates are the lowest of any low- and no-downpayment mortgage loans. For qualifying borrowers, it’s about the best mortgage product on the market. Eligible veterans never pay mortgage insurance, further improving the affordability of homeownership.

In general, active duty and honorably discharged service personnel are eligible for the VA program. In addition, home buyers who have spent at least 6 years in the Reserves or National Guard are eligible, as are spouses of servicemembers killed in the line of duty.

Check current VA mortgage rates (Sep 16th, 2024)

USDA loan: 0% down payment

USDA home loans offer zero down payment and low rates to buyers in less dense suburban and rural areas. These loans are backed by the U.S. Department of Agriculture.

The program was created to spur homeownership and economic activity outside of major urban areas. As such, homeowners must make less than 115% of the median income for the area. These income limits are quite generous. In some locales, upper-middle-class families will fall within acceptable limits.

USDA loans are one of the most affordable loan types. USDA interest rates are lower than those of conventional loans. Monthly payments are extremely affordable.

The USDA loan program was intended to make homeownership more accessible so it can only be used to purchase a primary residence.

This program is a powerful loan option for suburban renters hoping to break into the housing market.

Check your eligibility for a low-down payment loan

Mortgage rates are low, including those for low-down payment loan types. Making little or no downpayment on a home does not necessarily mean paying higher interest rates.

There’s no obligation once you check your eligibility for one of these programs. The lender will tell you if you qualify, and if you feel it’s not the right time to buy, you do not have to proceed.

Click here to check your home buying eligibility (Sep 16th, 2024)

The post Get A Mortgage With Less Than 20% Down first appeared on My Mortgage Insider.

The USDA home loan is one of today’s most popular ways to buy a home. And now, there is an easy way to use the program to refinance.

Click here for today's USDA streamline refinance rates (Sep 16th, 2024)

Since 1949, The United States Department of Agriculture Rural Development (RD) program has helped people in suburban and rural areas to buy homes with low rates, no money down and relaxed credit guidelines. In 2012, USDA rolled out a powerful refinance loan that requires no appraisal or income qualification.

This popular refinance type is called the USDA streamlined-assist refinance.

It requires no appraisal and no proof of income. Some lenders may even forego a credit check.

This program provides the easiest way to refinance a loan if you have a USDA mortgage currently.

USDA Streamline Refinance pilot program

The USDA initiated a pilot refinance program to help current USDA homeowners reduce their monthly mortgage payments quickly and easily. And they wanted to make it available even to those who owed more on their home than it was worth.

Now, this is no longer a pilot program. It has been rolled out nationwide.

At the end of the 2000s, home prices plummeted, leaving millions of homeowners underwater on their mortgages. Those who purchased with the popular USDA loan were no exception.

In fact, these home buyers were hit the hardest.

Home values in rural and suburban areas fell harder than in cities. Some areas saw declines of 50% or more. Most USDA home buyers purchased with zero down. As values fell, they had no equity cushion to absorb the blow. As rates fell, a refinance was impossible with negative equity.

Then in 2012, the USDA announced a bold program that disregarded negative equity. The program removed the requirement for a new appraisal, income documentation, and even bank statements assuming the borrower did not need cash to close the loan. Just about the only requirement was that the current USDA loan was paid on time over the last 12 months.

To date, the program has helped thousands of homeowners take advantage of historically low mortgage rates and lower their mortgage payments without the hassle of a traditional refinance.

Considering the great leniency of the program, it is reserved for homeowners with a USDA loan currently on their home.

Another benefit is that closing costs for the new loan may be rolled into the new loan, eliminating out-of-pocket expenses. No credit report or minimum credit score is required, although the mortgage lender may pull your credit to verify mortgage payment history. Like all USDA loans, this loan is subject to a 1% upfront fee and a 0.35% annual fee.

Click here to verify your USDA streamline eligibility now (Sep 16th, 2024)

USDA Streamline Refinance program chart of eligible states

The USDA streamline refinance program was only available in 34 states. Now, this refinance option is available to USDA homeowners in all states. See the below chart.

USDA Streamline refinance guidelines

USDA to USDA.  The USDA streamline pilot program is available for those currently with a USDA home loan. Homeowners with other loan types such as VA, FHA or conventional are not eligible.

30-year loan term.  The only loan program eligible for the USDA streamline refinance is the 30 year fixed-rate mortgage.

Income verification. No income documentation is required for the USDA streamlined-assist program.

Payment reduction requirement. The homeowner must reduce their payment by $50 per month, including principal, interest, and the guarantee fee.

Occupancy.  All USDA loans are for owner-occupants only and cannot be used to finance rental properties or second homes.

Borrowers. Additional borrowers can be added to the loan with the refinance. However, loan borrowers cannot be removed.

Property location. If the property was originally in an eligible area determined by the USDA but is no longer, the loan is still eligible for any USDA refinance.

Payment history.  The existing USDA loan must have been paid on time for the previous 12 months for the pilot program. For the standard streamline and non-streamline programs, some adverse credit can be acceptable if the reasons for it were temporary in nature and now passed (i.e. was laid off, but now back to work).

No cash out. None of the USDA streamline refinance loans allow the borrower to pull out any cash from your home equity.

Check today's USDA streamline rates here (Sep 16th, 2024)

USDA Streamline loan program FAQ

I bought my property with a USDA loan but now rent it out to relatives, can I still refinance?  No. All borrowers on the original loan must occupy the property when applying for the USDA streamline refinance.

My home was in a USDA-eligible area when I purchased it, but now it’s not. Am I eligible for the USDA streamline? Yes. As long as your home’s location met eligibility requirements at the time of purchase, you can use the program.

I want to make some improvements to the home, can I borrow more money for a new addition?  No. Additional funds may not be received from the refinance for any reason.

My lender wants to run a credit report but I don’t want them to. I thought the USDA pilot program didn’t require a credit report.  You can opt not to have your credit report pulled but if the lender requires it, your application may not be approved. In some cases, lenders can impose additional restrictions above USDA’s requirements. Lenders can order a credit report to verify you have made your previous 12 mortgage payments on time. Ask your lender if copies of your canceled checks or cashier’s checks to your mortgage company will work in lieu of a credit report.

Why do I need to pay for a new title insurance policy?  A lot can change from the time you first purchased the property until the time you apply for the USDA streamline including additional liens on the property that would interfere with the new loan. Title reports reveal liens and other issues with the property. All loans, regardless of the loan type, require an updated title report before a loan can be approved.

My state isn’t eligible. When will the program be available to the rest of the country? The USDA streamline pilot program was first opened to 19 states that were deemed “hardest hit” by the housing crisis. Then, the pilot program included 34 states. Now, it’s available in all 50 states. If your lender tells you they can’t help you with a USDA streamline, it’s probably because they are not a USDA-approved lender, or they don’t lend in your state at all.

My annual fee is 0.40% because I bought my home before the increase. Will my new annual fee be lowered to 0.35%? Yes. Since the refinance is considered a new USDA loan, all current guidelines are applicable.

I make more money now than I did when I bought my home. Should I be concerned?  To be eligible for any USDA refinance, the combined household income must be at or below the maximum limits set by the USDA. All members of the household will be required to verify their current income, including any working children. If a child or another household member recently got a job, this may also disqualify you from a USDA refinance.

My lender is asking for a bank statement. I thought I didn’t need to prove my income. The borrower does not have to document income to prove he or she can make the payments. However, income documentation will be collected to make sure the borrower is at or below current USDA income limits. In other words, the lender will use income documentation for eligibility purposes, not for qualification purposes.

When does the USDA streamline program expire? The pilot program expired on January 31, 2017 but has since been rolled out nationwide. There is no set expiration date for the new streamline refinance program.

Click here for a free USDA streamline rate quote now (Sep 16th, 2024)

Other USDA refinance options

The USDA streamline pilot program is the easiest option to lower your rate and payment. However, those not in an eligible state still have options to use another type of USDA refinance.

Standard USDA streamline refinance

This USDA refinance is available in every state. There are three main differences between this program and the streamlined-assist program.

1. The borrower is required to document all household income, just like with a USDA purchase.

2. Closing costs may not be rolled into the new loan. Therefore, you may have to pay out-of-pocket expenses. It’s possible that your lender can give you a credit to help pay for all or part of the closing costs.

3. Proof of income is required.

Similar to the streamlined-assist refinance, no appraisal is required. If the homeowner owes more than the home is worth, he or she can still qualify for the refinance.

The upfront fee of 1.00% is required for this loan, and may be rolled into the new loan amount. The borrower must pay the annual fee of 0.35%, just like with a purchase loan. The fee is paid monthly with the mortgage payment and equals $29 per month for every $100,000 borrowed.

Click here to verify your USDA refinance eligibility (Sep 16th, 2024)

Non-streamline USDA refinance

This program is essentially the same as the streamlined refinance, except that it allows closing costs to be rolled into the new loan, potentially eliminating out-of-pocket expenses.

However, an appraisal is required for this option, as is a credit check and verification of your current income. The homeowner can request a new loan balance up to 100% of the home’s appraised value as long as no cash back is received.

The 1% upfront fee is required on this refinance and can be rolled into the new loan amount, even if it pushes the final loan amount above the current appraised value.

How do I apply for a USDA Streamline Refinance?

To apply now, simply complete this one-minute form and select “Conventional Refinance” in the drop-down selector. You will receive a live USDA refinance rate quote and eligibility check.

Click here to verify your eligibility for the popular USDA Streamline Refinance Pilot Program now (Sep 16th, 2024)

The post USDA Streamline Refinance Program Guidelines & State Chart 2024 first appeared on My Mortgage Insider.

But be careful when looking to buy or refinance a home with a pool. That swimming pool can cause delays in the mortgage process, or drown your loan application altogether.

“If there’s a swimming pool, it either has to be in working order, or it has to be removed, filled in – basically not exist anymore,” says Karen Stubrud, loan officer and certified mortgage planner at Mortgage Advisory Group in Marysville, Washington.

Will a swimming pool affect your mortgage application?

Stubrud worked with a client who wanted a reverse mortgage, but had an empty, aging swimming pool on the property.  Reverse mortgages follow FHA guidelines, which are particular about swimming pools. “They don’t want it to be a health hazard or a safety hazard that there’s a big gaping hole in the ground.”

So what did the client do? “How they handled it was that they filled it in,” says Stubrud. They broke apart the edges of the pool, threw the pieces in the hole, and completely covered the entire area with dirt. The pool ceased to exist.

There were no other options for this aging homeowner who didn’t have the money to get the pool in working order. But Stubrud says the client did bring up an alternative idea. “They actually wanted to keep it and they were going have this subterranean greenhouse. I said, ‘Nope, that’s not going to work.’”

The client didn’t get their greenhouse, but they did pass the all-or-nothing test when it comes to the pool.

Why do lenders care about the pool?

Many homeowners believe that what’s on your property is your business. While that’s partly true, you invite scrutiny to almost every inch of a home when you decide to finance it with the lender’s money. It’s true for FHA loans as well as any other loan type.

It boils down to safety. Lenders don’t want their money going to finance unsafe property. A pool that is a falling danger or is a breeding ground for bacteria is a hazard to the health of the occupants. Not to mention it opens the homeowner up to lawsuits.

The same standards would apply to missing stairs outside the back door, handrails, or exposed lead-based paint. A lender needs the home to be a safe, long-term residence before they lend on it.

What if I want to repair the pool?

Repairing the swimming pool to get it into working order will allow the loan process to continue.

When buying a home, this could be a tricky situation. It’s risky to use your own funds to make repairs on a home that’s not yours yet – especially pool repairs which can range from a few hundred to a few thousand dollars. But don’t expect the seller to agree to pay for repairs either.

There may be another way to make repairs, however. “The borrower will need to obtain a bid for the necessary repairs,” says Sarah Bohan, VP of Corporate Relations at MSU Federal Credit Union. “If the repairs are scheduled to take place after the closing, the lender will typically request to hold 1.5 times the bid amount in escrow.”

In this way, repairs can be made after closing with the money you deposit up front. You receive back any money left over after everything’s done.

But don’t count on this solution, says Bohan. “Many lenders are not able to allow for repairs after the mortgage closes because they sell their loans on the secondary market and need to deliver the loan within a set timeframe.”

Make sure your lender allows for repairs after closing before you agree to buy a home with a decrepit pool.

USDA loans & swimming pools

All loan types follow the same general rule: the swimming pool must meet safety standards. But one loan type, the USDA Rural Development home loan, goes one step further.

“Rural Development is a 100% financing program – meaning the borrower is not required to put money down to purchase the home,” says Bohan. “However, the 100% is based on the value of the home without the pool.”

In some cases, a swimming pool may not add value to the home, but that has to be determined by the appraiser. Any value that the pool does add may not be included in the USDA loan amount. So the buyer would have to pay for the pool’s entire value in cash.

Un-agreeing to buy a home with a damaged pool

Many times a homebuyer agrees to buy a home, but upon a home inspection, it’s determined that an aspect of the home is unsatisfactory — in this case, the pool.

Luckily, you can back out of the agreement based on the home inspection contingency, a part of your purchase contract made for such occasions.

You can refuse to buy the home unless repairs are made at the seller’s expense. If that doesn’t happen, you get your earnest money back.

The lender’s denial letter can also help you get out of a purchase agreement, says Bohan, “Typically, the buyer has provided the seller with an earnest money deposit. With a lender denial letter, this can usually be refunded.” But consult your real estate agent about the part of your purchase contract called the financing contingency. Bohan says, “It does depend on the terms outlined within the purchase agreement.”

They key is to tread lightly when looking at homes with in-ground pools. Don’t “jump in” to any decisions – pun intended. Consult your real estate agent and loan officer before considering a home with a sub-par pool.

The post How a Pool Can Affect Your Mortgage (or Refinance) Application first appeared on My Mortgage Insider.