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USDA Loans - The No Money Down Home Loan

Most people think about farmlands or pasture when they hear about a loan backed by the U.S Department of Agriculture. That’s understandable since when most people hear USDA they think of Organic farms, chickens, and harvests but there is a lot more to the USDA than meets the eye. The USDA is one of the only home loan Programs that do not require a down payment for single family housing. VA home loans do not require a down payment but you have to be a qualified veteran to obtain a VA loan. If that gets you excited enough to start the process now, click here to get started. For a more in depth look at USDA loans in throughout the country read on.

USDA Property Eligibility Requirements

97% of our Great Nations land mass can be purchased with a USDA approved Loan.You read that right, only 3% of the whole country’s land is ineligible for a USDA Loan, All of that ineligible land is located in Populated City Centers, but the good news is a lot of suburban area’s outside of the big cities are eligible for a USDA Home Loan.  For example in Plattsburgh NY only 7 square miles of the city is ineligible. The City of Plattsburgh is off limits but the town of Plattsburgh and many surrounding area’s such as Cadyville, Saranac, Dannemora, Peru, even Cumberland Head and surrounding area’s are USDA eligible areas.
 
 
For a better understanding of the property Eligibility check out the image below. The shaded red area is not USDA eligible butost of the country is eligible.
 

What is a USDA no money down home loan?

USDA loans are mortgage loans which are guaranteed by the U.S. Department of Agriculture. The program is officially known as the USDA Rural Development Guaranteed Housing Loan Program, or the “Section 502 loan”, named for its place in the USDA charter.
 
USDA loans are also known as “Rural Development Loans”, which can be a bit misleading. USDA loans can be used be used in rural areas, but many suburban areas are eligible as for the program as well.
 
USDA loans are popular among today’s first time home buyers because the USDA program offers no-money-down financing with flexible credit requirements. In addition, if you don’t qualify today, a licensed USDA lender can refer you to free credit counseling and establish a plan to get you qualified in the future. 
 
First time home buyers can finance 100% of a home’s purchase price, and, can even use the loan to help purchase a manufactured home or a modular home. 
 
 
Furthermore, because USDA loans are guaranteed against loss by the U.S. Department of Agriculture, they are of very little risk to banks. Low risk ratings results in lower than average interest rates. USDA mortgage rates are often the lowest of all of the government-backed mortgages. If you want the lowest possible payment, USDA is the right choice for you. 
 
USDA mortgage rates are typically lower than the rates for FHA and conventional mortgages backed by Fannie Mae and Freddie Mac. 
 
Lastly, the USDA loan program offers reduced mortgage insurance premiums (MIP) to its borrowers. PMI or private mortgage insurance is typically required anytime you finance more than 80% of a properties purchase price. Although USDA does require an annual mortgage insurance premium, it is lower than the pmi required on Conventional loans.
 
The annual USDA mortgage insurance premium — at just four-tenths of one percent per year — is 70% lower than the MIP charged for a comparable FHA Home Loan.
 
USDA loans can be big money-savers and they are available to first-time home buyers as well as repeat home buyers. Homeownership counseling is not required to use the USDA home loan program but highly encouraged if you are buying your first home. 
Let’s looks at some examples of USDA eligible property areas;
Plattsburgh NY USDA Eligibility Area
USDA Property Eligibility Map
If your not looking in the North Country Use this Property Eligibility Map to see the eligible area’s from across the country. You can search by Address or just zoom in on an area you are thinking about purchasing in.  Ill show another example below Of USDA Eligibility in the Saratoga Springs, NY area. Most people believe Saratoga Springs to be too populated for USDA eligibility. 

Saratoga Springs USDA Eligibility

Saratoga Property Eligibility

Long Island USDA Property Eligibility

USDA Long Island

Colorado USDA Property Eligibility

colorado USDA Loans
Don’t lose faith if you are looking to move into a more populated area, there are many other low down payment home loan options.  For example; you could use an FHA Loan anywhere in the country, Even a duplex, triplex, and four-plex are eligible for 3.5% down. Another great feature of low down payment loan programs are you can use gif funds from a family member for the down payment. For example, your father or mother can gift you the entire 3.5% down on an FHA loan. It could also be a no money down home loan for you if you take advantage of federal homebuyer grant programs. 
 

National USDA Property Eligibility Map

Shaded tan areas are not eligible for USDA financing

USDA Property Eligibility map

USDA Loans Income Eligibility Requirements

The USDA will not guarantee a mortgage for a household which exceeds its maximum income limits for a given area. This is because the USDA is meant to promote homeownership among households of “modest means” only.
 
To be eligible for the USDA financing, the agency states that a household’s annual earnings must not exceed the median household income for the area by more than 15 percent, with an allowance for the size of your household.
 
Households of more than 8 members can add eight percent for each additional member to their 1-4 member household USDA income limit.
 
Unlike most loan programs there is no limit to your loan amount, the limit for USDA Loans come from the USDA Income Limit.  That’s right, you read it correctly. If you make too much money you might not qualify for a USDA loan. The income limit for USDA is calculated county by county using the median income of that county. The median income of the county is grossed up by 15% and that is how you get your income limits. Don’t worry, you won’t have to figure this out yourself. The link below will bring to the USDA Income calculation tool. 
 
 
In simpler terms for a household of 1-4 people the national average income Limit is $84,200.00.  For a family of 5 or more people, the limit is increased to $105,200.00  The limit is the same in Essex, Franklin, and St. Lawrence County New York. 
 
If you are interested in another part of the country you can check the limits online or use our property Eligibility tool and we can do the legwork for you.  You can also use this Handy income eligibility calculator provided by the USDA.   Of course the easiest way to know if your eligible is to give us a call at  (518)324-5544.  If you currently earn more than the USDA income limit, there are other ways to get into a home with No Money Down. Expenses such as childcare, unreimbursed business expenses, and a few other deductions can help lower your income to meet eligibility.

USDA Credit Eligibility Requirements

Credit requirements on a USDA Home Loan are a bit more flexible than Conventional home loans. 
 
The Minimum Credit Score Required is 620 for a USDA Home Loan. They also require no new collections with in the last 12 months excluding Medical collections. It is more likely to be qualified if you have no recent delinquencies on credit and an overall good standing with the Credit bureau’s.   If you can prove that your credit was affected by circumstances that were temporary or outside of your control including a medical emergency, you may still qualify.  Also, youu can not have a bankruptcy within the past 2 years. If you are credit challenged, schedule a free credit consultation and start moving towards homeownership. Our experts can help guide you to increase your credit score in as little as 2 months. 
 

USDA Monthly Mortgage Insurance Requirements

A USDA mortgage is backed by the U.S. Department of Agriculture, and partially funded by the borrowers that use the program through mortgage insurance premiums charged to program homeowners. By charging mortgage insurance premiums the government is able to keep the Rural Housing Loan program affordable and available to home buyers Nationwide.
 
As of October 4th, 2019 the USDA mortgage insurance rates are :
 
1.00% upfront fee paid at closing, based on the loan size and a 0.35% annual fee, based on the remaining principal balance
 
As a real-life example of how USDA mortgage insurance works, let’s say that a home buyer in Cary, North Carolina is borrowing $200,000 to buy a home with no money down. The buyer’s mortgage insurance costs will include a $2,000 upfront mortgage insurance premium, which is added to the loan size of $200,000; plus a monthly $58.91 payment for mortgage insurance.
 
Note that the USDA upfront mortgage insurance is not required to be paid as cash. It can be added to your loan balance for you to reduce your funds required at closing
 
As of October 4th, 2019 the current USDA average interest rate is 3.875% with an APR of 4.375%. Not all credit profiles will qualify for the best interest rate. 

The USDA Funding Fee and Annual Mortgage Insurance Premium

Almost all loan program’s require a mortgage insurance premium, a funding free,  or PMI if you put less than 20% down.  The advantage of USDA is that the Funding Fee can be financed into your loan.  As of 10-4-19,  the USDA’s one time upfront funding fee is 1% of the loan amount. If your base loan amount is $100,000 than your total loan amount would be $101,000 with the funding fee incorporated into the total loan amount. There is also the annual mortgage insurance premium which is paid monthly as part of your total  monthly payment  This is sometimes referred to as MIP (mortgage insurance premium).  The MIP is .35% of your remaining loan amount. The annual fee is spread out over your 12 monthly mortgage payments. For a $100,000 USDA Home Loan your MIP or Annual fee would be $350, which divided over 12 months comes out to just under $30 a month.  Not a bad price to pay for 100% financing on your first home. Compare this to an FHA home loan and the monthly amount would be $71 a month. You can easily see how USDA loans offer some of the lowest monthly mortgage payments available. The only program that offers a lower monthly mortgage payment than USDA is a VA loan. A loan offered to qualified armed service veterans. 
 
I hope this article helps put you in the path to homeownership. Don’t get caught in the trap of trying to over analyze your own personal financial profile.  We have a team of approved USDA experts who are here to guide you through your home buying journey. Don’t hesitate to give us a call at (518)-324-5544, or send us a message on Facebook. If your ready to get started use our safe and secure Online Application.

COMPARE TODAY’S USDA MORTGAGE RATES

For home buyers in search of a low- or no-money-down mortgage, the USDA home loan offers low rates, flexible guidelines, and inexpensive mortgage insurance.
 
Compare today’s current mortgage rates now. Rates are available online at no cost, with no obligation to proceed, and with no social security number required to get started.
 
Call 518-324-5544 for more information

 

 

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