USDA Loans

There is a lot of information floating around on the internet about USDA Loans. You may have seen ads that claim you can buy a house with no money down and with no closing costs. At face value, that’s true. USDA Loans makes it possible for qualified buyers to purchase a home with no money of their own. However, a buyer must meet several financial requirements as well as location requirements to be eligible for this loan program.

What is a USDA Loan?

A USDA Loan is also called a Rural Development Loan, as the program is designed to build communities in under-developed rural areas by making buying property more affordable. Like an FHA Loan, a USDA Loan is a government insured mortgage loan, and it provides 100% financing to low-income buyers. This program is designed to help low to moderate income families achieve home ownership in rural communities.

Do I need to put money down with a USDA Loan?

No. In fact, the home buyer is required to borrow 100% of the purchase price, which will be financed over the loan term which is generally 30 years. And unlike many other loans, a USDA Loan allows for some costs to be financed into the loan, and allows for the buyer to obtain a seller credit to contribute towards closing costs. With no money required at closing and a low rate of PMI (mortgage insurance), the USDA loan program is very attractive to first time home buyers, but not limited to first limited to first time home buyers.

What are USDA Loan Requirements for Pennsylvania?

First and foremost, applicants must purchase a home within the eligible rural areas, which will vary by county. But despite a common misconception, a USDA loan does not limit the buyer to purchasing only farmland. Your mortgage professional can look up a specific property or neighborhood and let you know if it qualifies for this program.

Another misconception is that the USDA Loan Program is only for first time home buyers. Although it provides a great option for a qualified buyer who is currently renting an apartment or sharing living space with another family, the loan is not limited to first time buyers.

The USDA loan has a set of income requirements, and the applicant’s household income cannot exceed the established limits, which will vary by county. However, there are some allowable adjustments to the total income, which take expenses such as child care into consideration. A mortgage professional can help determine which income can be excluded from the calculation.

There are also some credit history requirements, which may not be as strict as you imagine. When reviewing applications, greater importance is placed on the borrower’s credit history rather than credit rating. A loan processor will be looking for a history of willingness and ability to pay off debt: a documented steady income and consistency of paying off credit cards and other bills in a timely manner. Credit rating is also a factor in the application process, but a less than perfect credit score does not necessarily disqualify you.

What if we don’t meet all of the requirements?

It’s important to speak with a mortgage professional to see if the USDA Loan program is right for you. The qualification process can be complex, but not meeting some of the criteria is not an automatic dismissal of your application. A mortgage professional can help you understand what exceptions are likely to be granted.

Are there other “no money down” loans?

If you don’t meet the income requirements for the USDA loan, you may still have other options that offer affordable ways to buy a home. There are non-conventional mortgage loan programs that you may not be aware of, which offer little or no money down or reduced fees. There are also some government down payment assistance programs that can help buyers with funds for the purchase of a home.

Speak to a mortgage professional to know what your options are and how to find the most competitive loans. As with any mortgage loan program, there are limitations, risks and fees which you should fully understand before making any commitments.