USDA – Zero Down Payment

By Jim Palmer Jr.

Many buyers know that there is zero-down-payment requirement for Veterans who apply for a VA loan, but most buyers who have not had a military background don’t realize there is also a zero-down opportunity for them. The US Department of Agriculture provides subsidized and guaranteed loans for low and moderate income families living in rural areas. These loans are referred to as Rural Development Loans and are intended to provide affordable housing opportunities to promote prosperity and quality of life in rural areas.

Basically how this loan works is that the borrower asks the seller to pay approximately 3 –3 ½% of their closing costs and because there is no down payment requirement the buyer pays zero dollars at the closing table.

In order to qualify, the buyer must be a U.S. citizen and agree to occupy the dwelling as their primary residence, prove creditworthiness (typically with a credit score of at least 640), have stable and dependable income, show willingness to repay the mortgage by showing 12 months of history with no late payments or collections.  The home must be in good repair and cannot be a manufactured home unless there is a current USDA loan on the home. Buyers can expect the USDA loan process to take 30-45 days.

Since this program is intended to give home ownership opportunities to rural buyers, it cannot be used to purchase inside metropolitan areas. In other words, the line is drawn around the city limits of Spokane and the loan is NOT available to buyers who wish to purchase inside that boundary. Buyers CAN use this loan to purchase a home on a small lot inside the limits of small surrounding towns or homes on acreage in rural areas.

Much like a VA loan, USDA guaranteed loans don’t have PMI (Private Mortgage Insurance), though there is an upfront (1%) and annual fee (.35%) that serves basically the same purpose. The one-time guarantee fee is paid at closing, while the annual fee is lumped into the monthly payment.

Loan limits for Pend Oreille, Stevens and Spokane counties are $251,862, which makes it difficult to find a home under current market conditions… but not impossible. As real estate inventory shortages start to ease and more qualified properties become available, eligible rural buyers should be able to take advantage of this great loan product!