If you are considering buying your first home, you most likely have the daunting issue of coming up with the down-payment. This is not uncommon for most buyers. There is good news for those that are delayed with buying a house due to lack of funds for a down-payment. If you are able to live in an area that is considered to be rural you may be able to qualify for no down-payment! The idea of rural makes most immediately think of living in the woods of a country area. In most instances it simply means you may have to be willing to live outside of the nearest city limits. This provision can be available to you through the United States Department of Agriculture Rural Development often referred to as USDA. The program makes it possible for single family residences to be purchased by low to moderate income families. What this means is, if you can qualify for a loan of any amount at a loan to value of 90% the program will provide a guarantee for no down-payment. You must however use an approved lender. This means you, the buyer, may receive up to 10% of the selling price as your down-payment. To make sure it is understood, the buyer does not receive cash but instead the lender is given guarantee for coverage of 10% down with a loan of 90%. Before you seek a lender it is a good idea to ask your Real Estate Agent to recommend a few USDA approved lenders to shop. Most agents are familiar with the lenders in thier area.
Approved Loan LTV 90/10: Max Sale Price of house = $100,000
Buyer’s loan amount = $90,000 (usually paid over 30 years)
Buyer’s down-payment = $10,000 (this amount would be covered by USDA program)
As can be seen by the above example the buyer has the loan to pay $90,000 of the purchase price. USDA guarantees $10,000 to cover the down-payment. Thus, nothing out of pocket for the purchase of the house right? While this covers the house purchase the buyer still will have to pay closing costs and some items that are prepaid before the purchase process can begin. A home inspection for example is paid in full by the buyer. The same goes for the appraisal of the property you wish to buy. The inspection is optional but the appraisal usually isn’t. Lender’s require an appraisal evaluation to make sure the house is worth the purchase price of the sale. Working with a real estate agent that is a good contract negotiator is of importance! In some cases the cost of closing for the buyer can be written into the contract to be paid for by the seller. If you have an agent that puts your interest first, they will negotiate and leave you with little out of pocket expense. It is still a good idea for the buyer to set aside some funds for thier closing costs.
While all of this sounds great there are some things that need to be understood. The USDA does have some pre-requisites to utilize the program. A quick print of the overview of the program can be downloaded “HERE” . Some of the basic items that must be met to apply for USDA program are as follows:
1. Be within the income-eligibility amounts. Check “HERE” for these requirements.
2. You must personally occupy the dwelling as your primary residence.
3. You must be a U.S. Citizen, U.S. non-citizen national or Qualified Alien
4. Have the legal capacity to incur the loan obligation
5. Cannot have been suspended or debarred from participation in federal programs
6. Have a willingness to meet credit obligations in a timely manner
7. Purchase a property that meets all program criteria including approved areas. Click “HERE” to search address of a property.
The main reason the USDA offers this program is to make it possible for lower income to middle income families in rural areas be able to make owning a home a reality. If you feel you would like to know more about this option for a no down-payment purchase of a home please contact Julien Lafont today!