Get 100% Financing with Zero Money Down with a USDA Loan
What is a USDA loan?
USDA loans are backed by the US Department of Agriculture. They are for people who live in low- to moderate-income households and want to buy a home in a rural or suburban area. The main requirement is that the property must be in an area that is not inside a major metropolitan center.
USDA loans were largely brought about to help build communities in rural areas. USDA loans are geared towards low to medium income families and also allow mortgage companies with alternative loan options for these families and in these rural areas.
Luckily for us Missourian's, we have the benefit of having one of the largest areas that qualify for these loans. As you read this blog you'll see which areas qualify and I'll explain to you the reasons why the USDA loan is my favorite mortgage option.
The Pro's of a USDA Mortgage?
No Down Payment or Private Mortgage Insurance (PMI) required.
This may sound too good to be true but we use these loans constantly for our buyer's. Zero money down!
No Cash Reserves Required
This is a HUGE bonus! With FHA and Conventional loans mortgage companies require you to have enough "cash reserves" in your bank account even after paying your down payment and closing costs. What this is, is a certain number of monthly mortgage payments, usually 3, left in your bank account for reserves. With USDA you can wipe your account clean and still close.
Seller Can Pay Closing Costs
This is true for all loans, however with USDA it's even better. Seller's are allowed to pay up to 6% of the purchase price, where FHA they are only allowed to pay up to 3%.
This is where you can literally get into a home with zero money out of pocket. We also use this a lot when it comes to our buyers, especially ones that don't have a lot of money, or any. If you combine this option along with the USDA loan, 100% financing, you can be in your new dream home for nothing out of pocket. The bank loans you full purchase price, no down payment, and the seller pays for your closing cost. I've actually had buyer's get their earnest money back at closing.
Lower Interest Rates
Typically USDA interest rates are lower than FHA and conventional loans
Ability to Finance Repairs and Closing Costs
So let say you go under contract on a home for $200,000, but the home actually appraises for $220,000. Well with an FHA or Conventional loan that wouldn't really matter. If you wanted to use that equity for say home repairs or upgrades, you would have to wait 6 to 12 months to do a cash out refinance. This would also involve more fees for the refinance.
With a USDA loan you can roll that extra $20,000 into covering any closing costs you may have, use on any repairs, or you can use it to do any renovations you may want done. USDA loans are the only loans available that allow any of this.
The Con's of a USDA Mortgage
There are really only two major con's to using this type of mortgage. And they aren't really con's, just restrictions that may cause you not to be ineligible.
Geographical Area
USDA loans are designed to help low to middle income earners not only get into a home where they may not otherwise be able to, but also to help develop rural areas. I will put a map down below of the areas that qualify. Now this is just the main areas that myself and the agents on my team work most. If you're looking in another area feel free to reach out to me and find out if that area not only qualifies, but i'll get you in touch with the right agent and lender.
Income
Again, these loans are meant for low to middle income so they do have an income requirement that you cannot exceed. Oddly enough they don't have a cap on the price point of a home, unlike FHA loans, but you do have to stay within their income requirements.
For households of 1-4 people the annual income cannot exceed $91,900. For a household of 5-8 the annual income cannot exceed $121,300.
Anything that is highlighted in red will not qualify for this loan. So as you can see if you're looking in downtown St. Louis, St. Louis County and most of St. Charles County a USDA loan will not work. However if you're looking in Jefferson County, Franklin County or Washington County almost all of the homes in those areas would qualify.
If you're looking in the areas that don't qualify still feel free to reach out and we can find you solutions for those areas as well.