USDA and VA – The "Secret" No Money Down Loan Programs
Currently there are only two loan programs offered throughout the United States that allow a homebuyer to purchase their home with no down payment and no out-of-pocket costs provided the seller pays for the closing costs and escrows. The two loan programs are VA and USDA. The VA loan program requires that the borrower have earned their VA Eligibility by serving in the military and/or reserves.
The USDA Rural Development Loan Program, doesn't have any service related requirements, and is available to everyone provided:
- The homebuyer purchase a home in a rural designated area; and
- Has a household income that is considered moderate under the USDA guidelines
Based on these two parameters the immediate assumption is that rural means in the middle of nowhere. This is far from the reality of the program. The U.S. Department of Agriculture uses population density formulas to determine eligible areas. Frequently these areas are far from being in the "sticks, often have all the amenities as a city without the crowds, and probably don't even have any farms in the immediate vicinity.
The next incorrect assumption is that moderate income translates into very low income levels. Again, this just isn't the case. Depending on the state, county and family size maximum incomes frequently can exceed $100,000 per year.
So the questions then becomes if a house is eligible for a USDA Rural Loan why aren't Realtors highlighting the benefit of no money down financing with no monthly mortgage insurance to homebuyers. Regrettably the main reason is lack of knowledge. Most Realtors just don't know that the program exists or have not taken the time to research the program. Often the Realtors lack of knowledge can be traced back to a preferred lender lack of emphasis on teacher their Realtor partners about the program. Unfortunately all too often the Loan Officer's lack of emphasis on the USDA Rural Development Loan Program is due to not having access to the investors for this no money down loan program or having never originated a USDA loan the Loan Officer doesn't want to step out of their comfort zone.
Maybe I am being too tough on my fellow real estate professional. Maybe a Realtor or Loan Officer had a negative experience, in which the loan was approved by the investor but subsequently declined by the USDA Underwriter who wields veto power on any USDA loan. Further, by having a USDA Underwriter also sign off on the loan it will take a longer timeline to obtain a final loan commitment. And finally the house does have to meet FHA appraisal requirements so the condition of the property does have to be in good condition with no outstanding safety related issues.
Even though the loan is tougher to get approved it's important to remember that the USDA Rural Development Loan is a fantastic loan program that helps homebuyers get over the number one obstacle to homeownership, which is the lack of a down payment. All the other benefits are just icing on the cake.
To learn more about the USDA Rural Development Loan call me at (866) 305-7808.