100% mortgages have not gone completely by the wayside. While layering risk by lending to borrowers with low credit scores + no down payment + no income documentation will no longer fly (good!), there are programs out there for those who don’t face all of those challenges. The USDA Rural Development home loan is one such option. What is rural? The USDA has defined rural as anything not ”places of 50,000 or more people and their adjacent and contiguous urbanized areas.”
USDA Rural Development administers a couple of programs: Guarantee and Direct. Their Direct program is funded directly (hence the name “direct,” duh) through the rural development office. To be eligible, your income can be only 80% of the median income for the area.
The Guarantee program is funded thorugh USDA-approved lenders and brokers. It is a guarantee program (duh, again!)with no subsidies, and the income guidelines allow up to 115% of the median income after certain adjustments. A good loan officer who specializes in these products should be able to help you determine how your income would be considered.
The 100% LTV mortgage amount is determined by the appraised value instead of the purchase price. Credit underwriting is flexible and the guidelines have no minimum buyer out-of-pocket expense and no maximum for seller concessions. Note: some lender policies may be more restrictive, so if it’s the lender guidelines shooting down your application and not the USDA’s, another lender may be able to approve you.
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(8 votes, average: 5 out of 5)
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The only problem I can see with this is the gas prices. If you have to live in the “boonies”, you have to drive into work everyday. The money you save on gas if you live in town could add up to a pretty hefty down payment real soon.
Can you still qualify for these programs if you have bad credit?
Re: Boonies, you’d be surprised what constitutes “boonies.” By some definitions that is over 90% of the land in the country and well over half the population! I live in Reno, NV, a city with “rural” areas right outside its limits–a minimal commute. It depends where you live but it’s worth finding out how far you’d have to drive.
Re: credit, it depends what you mean by “bad.” Guidelines have some flexibility, meaning that if you can get approved for an FHA loan you can probably get a USDA loan. If you aren’t able to pay your bills now you need to put off home ownership until you can show that you know how to manage debts. Even with no down payment requirement you can increase your chances of being approved by saving up enough to pay a couple of months’ worth of bills in case of emergency. Best bet is to check with a lender.
So, how hard is it to get one of these loans. I was looking to borrow about $25k in the Martinsburg WV area. The rest I was going to put down on a home…..about $100k from my half of present home. Am in SC now, so have no job up there at all.
Hi Peggy,
If I understand your question, you want to put down $100,000 on a $125,000 home. You say that you have no job. That isn’t a problem as long as you have some source of income, whether it be public assistance, alimony, child support, etc. USDA loans, like FHA loans, don’t require a lot of income, but they do require that it be documented and stable.
Another piece of advice: unless you have other assets besides the $100,000 you will get from your current home, I don’t recommend putting it all down on a new home. I’d keep at least six months’ of expenses put aside for emergencies. It makes you financially safer and a better risk for a lender too.
Good luck. And if you have other questions please write.
Gina
I am looking to purchase a home in the next few months ( hopefully). I have excellent credit, but a lower income - My gross annual income is not over 22,000. However I do have some assests - about 37,000 worth. I applied for a USDA Home Loan and I was approved but not for a 1% loan — only was approved for a 4.65% loan along with a requirement of making a 26,000 down payment.
It might seem like a good time to buy, but if I were you I’d wait. The housing market is crashing, and despite reports that it is recovering, this crash is only in the beginning. Save your money, look at an online calculator that shows you the benefits of buying vs. renting, and you will see that saving your money for the next 5 years will benefit you! good luck!
The market is a factor, but so are the incentives that will expire–specifically the tax credits–both federal and in some states as well. And the interest rates can make a huge difference. Look at your calculators for that as well. For example, if you finance $300,000 today and get a 5% rate, your payment is $1,610. If you finance $275,000 in a year or so and get a 6% rate, your payment is $1,648. And you have no tax credit. And markets are really only tanking in 4 states–the rest of the country hasn’t been doing that badly. It depends on your own set of circumstances and that’s why it’s so important to get help from professionals who are trained to help you look at all the angles and make the best decision.
Is there a minimum amount of time that a owner must occupy the residence if purchased with a USDA home loan? For example; if you own and live in your home for 3 years you do not have to pay taxes when you sell. If you get my drift.
My question is I have heard in WV you have to have a credit score of 620 to quaily.. Is this true or can you go though a diffrent company? There so much information on the web.. But whos to say its all true.. I mean i get 10 diffrent anwsers from 10 diffrent websites.. Also can a secured credit card really help your credit score improve in as little as 3-6 months??? Thanks
Hi Sonja,
Like FHA, the USDA does not itself have a minimum credit score requirement. However, some lenders have chosen to impose one. Best bet is to ask the lender when you call before you go through the whole process. Re: secured credit card, if the company reports your payment history to credit bureaus you can re-establish credit with one. Some are just expensive rip-offs though. A cheaper way to develop a positive history is to be put as an authorized user on one or more family member’s credit card(s). You don’t use the credit and don’t have to do anything–as long as your family member has good credit and pays it on time, you get the benefit of his or her payment history.
Why can’t I get a rebate or help on refinance?
i have applied for a direct USDA RURAL HOME LOAN SECTION 502, i want a home of my own so bad, i”m paying $450.00 on rent each month, why? i could be getting a home for my son and i, my credit score is poor but i want a home so bad, the house we are renting is old , no central heating or air, the ceilings are going to fall in the landlord gets mad if you tell him about all the problems the house has, i”m tired of giving money for a house i”ll never have , i have no desire to decorate it because i will be doing it just for the owner i want a home for my 19 yr. old son who is autistic and others things that”s wrong with him plus i”m bipolar,panic disorder i used to work at BAXTER HEALTHCARE IN MTN. HOME AR, FOR 22 YRS. I LOVED IT BUT NOW MY SON AND I ARE DRAWING SSI, AND DISABILITY.