After the housing and mortgage crash from 2007 through improvement that began in 2012, there are millions of would-be home buyers sitting on the sidelines wondering if it’s a good time to buy. With home prices still at long term low levels and interest rates lower than the 20 year average, it would certainly seem like the perfect time to buy a home. However, the next hurdle many face is the lender requirement for higher down payments than in the past.
What if you could find a home mortgage requiring NO down payment, and you could even finance up to 105% of the appraised value of the home? That 5% overage can get you into a home with zero out of pocket cash, as it will usually take care of the closing costs. This isn’t fantasy, as one real estate broker helped a divorced mother of three to buy a home with no money down. She wrote a check for $500 as an earnest money deposit, and got it all back at closing!
Even better, the interest rate was a little below the conforming rate for normal mortgages, as these loans are backed by the USDA, US Department of Agriculture. Ah you say…it needs to be a farm. No, it doesn’t. The USDA guarantees home loans in “rural areas” all around the country, and even makes direct loans in some cases for low income borrowers.
If you doubt that you’re buying in a “rural area,” there’s an eligibility map on the USDA website, and you’ll be surprised at how little of the country is excluded from this program. Generally, the only areas excluded are tightly concentrated around large urban centers. It’s impossible to estimate with high accuracy, but fully 95%+ of the land area in the U.S. is probably eligible for the USDA Section 502 Home Loan Program.
Let’s take a closer look at our example transaction, a purchase by a divorced school teacher with three children. Income is another qualifying factor, as this loan program is focused on helping lower income buyers. There are also income charts at the website with guidelines as to how high your income can be and still qualify you for a USDA backed loan. This teacher’s gross income was around $48,000, and she qualified in her area of residence.
The home was priced at $217,900, and as mentioned, she put up $500 in earnest money with the expectation of a very low or zero down payment. The home appraised for the selling price, and the 5% allowable overage took care of closing costs. She left the closing table with the $500 earnest money deposit back in her pocket and a smile on her face.
Not every mortgage broker is familiar with the USDA 502 program, and some may know about it but not want to hassle with it. If you check out the site at USDA.gov and find that you may be eligible for a mortgage under the program, interview lenders and mortgage brokers to see who is willing to process the loan. It’s best if they have recently processed a few, as requirements and procedures change.
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