One of the biggest barriers to homeownership is the required down payment.
That roadblock doesn't exist with USDA loans.
It is one of only two major products requiring no down payment, the other being the VA loan, for which you need eligible military service.
With a USDA loan, though, you only need to find a home in an eligible location -- which is currently about 97% of U.S. land mass.
Have no money to buy a home? This mortgage solution could be your ticket to homeownership.Click to see your USDA loan eligibility (Sep 23rd, 2017)
USDA mortgages require no down payment. Compare that to an FHA loan for which you need 3.5% down, and a conventional that requires 3-5% down.
For a $200,000 home loan, the following down payments would apply.
|Loan Type||% Down||Down Payment|
Even though 0% down is required, you will still need to come up with closing costs, which could total thousands of dollars.
Closing costs come in two categories:
Typically, costs to acquire the loan and home vary by lender and company, which expenses tied to the property don't change no matter where you get a loan.
These costs include lender and title fees and can vary by provider.
Title and escrow fees
Expenses associated with the property
Certain expenses are required any time you own a home. When you get a mortgage, the lender will require that you prepay a certain number of months of these expenses.
They do this to ensure that your home is not in jeopardy of being seized by the government, in the case of unpaid taxes, or at risk of being destroyed with no insurance.
The lender will require the following amounts to be collected with other closing costs when you finalize your loan.
For instance, your home value is $200,000 and your property taxes are 1% per year. Plus, your homeowner's insurance is $600 per year. The lender would collect approximately:
After collecting the fees, the lender sends payment to the county tax office and your insurance company. They handle these payments to ensure the items are paid in full.
Expenses like a home inspection and home warranty are a good idea, but not required or collected by the lender.
The good news is that you don't have to pay USDA mortgage closing costs out of your own pocket.
A little-known USDA guideline says you can take a bigger loan amount to pay for closing costs, if the appraised value is higher than the purchase price. For instance:
Other ways to pay closing costs are as follows.
In some markets, the seller can "kick in" extra money for closing costs. Seller credits are typically available when a motivated seller is not getting many offers on the home.
The lender can raise your rate slightly and credit you the extra profit from that higher rate. For example:
That money can be used for all lender, title, escrow fees as well as property taxes and insurance
You can receive financial assistance from a family member, employer, or other eligible sources to pay all or part of your closing costs.
USDA financing removes traditional barriers to homeownership. Many home buyers must come up with a down payment and closing costs, but USDA buyers eliminate a big part of that total.
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
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2017 Conforming, FHA, & VA Loan Limits
Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)