This article covers How Do I Qualify For A USDA Loan With 100% Financing.
Owner-occupant primary residence homes zoned and designated as rural areas by the USDA are eligible for USDA loans.
- There is no down payment required on USDA loans
- Closing costs can be covered with a sellers concession and/or a lender credit
- USDA and VA loans are the only two loan programs that allow for 100% financing
- How do USDA loans work?
No Down Payment Required on USDA Loans
USDA Loan programs offer 100% financing. A home buyer does not need to put any money down on USDA Home Loans. Home Buyers can purchase a home with zero money down and no closing costs. Homebuyers request closing costs during the home purchase negotiations.
Most homebuyers use the seller’s concession by the seller to pay for closing costs. Or if the seller concession is short to cover closing costs, the borrower can get lender credit.
Closing Costs on USDA Loans
How about closing costs on the home purchase?
On any home purchase transaction, there are closing costs that a home buyer is responsible for. However, a home buyer does not have to cough up any closing costs on a home purchase.
As long as buyers can get a seller’s concession towards the home buyers closing costs. In the event, if the home seller does not want to give a seller’s concession towards the buyer’s closing costs, lenders can give a lender’s credit.
Lenders’ credit towards the home buyers closing costs covers when there is a shortage in closing costs with a seller’s concession.
If the home buyer can structure the home purchase right, buyers can purchase a home with no down payment and no closing cost with USDA Loans.
USDA loan programs do have a mandatory funding fee.
But the funding fee can be rolled into the balance of the mortgage loan.
100% Financing: No Down Payment Mortgage Programs
There are two government mortgage programs that offer 100% financing where the home buyer does not have to come up with any down payment on a home purchase.
USDA. loan programs offer 100% financing on a home purchase. But the property needs to be in a USDA-approved location. Homebuyers need to qualify for the USDA Loan not just with credit and credit, the borrower cannot exceed a certain amount of household income in order to qualify.
The non-borrowing spouse’s income counts towards the household limit threshold. This holds true even though the non-borrowing spouse is not on the loan.
Household income is the income of all wage earners in the household.
USDA Loans has the guarantee of the United States Department of Agriculture’s Rural Development Single Family Housing Loan Guarantee Program. The Department of Agriculture Rural Development created USDA loans to promote homeownership in rural and suburban areas throughout the United States. USDA Loans are referred to as Rural Housing Mortgage Loans and Section 502 Mortgage Loans.
VA Loans
The second government loan program that offers 100% financing is VA Home Loans. The United States Department of Veteran Affairs insures VA loans. It is only available for members of the United States Armed Forces and its veterans with a Certificate Of Eligibility (COE).
VA loan programs offer 100% financing with no money down required by veteran home buyers. There is a VA funding fee that is mandatory. The VA funding fee goes on the end of the loan balance.
VA allows up to a 4% seller’s concession from the home seller. This credit is used to offset and pay for the home buyer’s closing costs.
Advantages Of USDA Loan And How Do I Qualify For A USDA Loan?
How do I qualify for a USDA Loan?
First, the location the property is located needs to be approved by USDA. The Department of Agriculture is the agency that deems an area USDA loan approved.
In general, to be classified as a USDA-approved location, the location needs to be in a rural area or suburban area. The USDA loan program offers 100% financing. Requires no down payment.
There is an upfront USDA mortgage insurance premium just like FHA’s upfront mortgage insurance premium. The upfront mortgage insurance premium is 2%.
Upfront mortgage insurance premium goes into the balance of the USDA Loan. USDA mandate an annual mortgage insurance premium throughout the life of the USDA mortgage loan.
Unlike FHA’s 0.85% annual mortgage insurance premium, USDA’s annual mortgage insurance. premium is only 0.40%, regardless of whether it is 100% financing or 90% financing. USDA offers 30 year fixed rate mortgage loans.
Homeowners can also do a USDA Streamline Refinance Mortgage Loans.
How Does USDA Loan Work?
The USDA is not a mortgage lender. It is a government agency that insures private residential mortgage lenders originating and funding USDA Section 502 mortgage loans against default.
Just like FHA where FHA is not a lender but insures mortgage lenders against default from homeowners. The purpose and goal of USDA are to encourage and stimulate homeownership in rural areas as well as underdeveloped areas in the United States.
Income and Credit Qualification Requirements for USDA Loans
How Do I Qualify for USDA Loan:
Besides the property needing to be in a USDA location, the borrower needs to be qualified for USDA mortgage requirements.
The maximum debt to income ratios required is 28% front-end ratio and 41% back-end debt to income ratios. There is also a maximum income cap. Borrowers cannot be making $500,000 per year and qualify for a USDA loan.
The borrower’s household income cannot exceed 115% of the county’s median income. Maximum income requirements vary from county to county. Household income requires all income by the heads of household to be used.
Borrowers need a 580 credit score to qualify for USDA Loans.
USDA loans are only for owner-occupant primary homes. Second homes and investment homes do not qualify for USDA Home Loans. This blog on how do I qualify for a USDA loan was updated on June 4th, 2021.
