Looking for a Zero Down Payment on a Home for Sale in Fort Bend or Harris County?
You may be eligible to use the USDA’s Home Loan Program for purchasing your next house with 100% financing.
What’s the catch?
The USDA Loan also known as a Section 502 Loan actually goes by the full name of USDA Rural Development Guaranteed Housing Loan Program. Now, as the full name implies it is strictly for rural areas and the financing is backed by the United States Department of Agriculture. However, when most people think of rural areas they begin to think of the country, which of course is true, yet rural is further defined and expanded as areas outside of cities. As you might imagine, this ‘area outside of a city’ can include a lot of homes and a lot of new neighborhoods which have moved outside of the city limits. Therefore, don’t assume that because the home isn’t in the middle of nowhere that it isn’t eligible. For instance, outside of the Richmond / Rosenberg area are many new construction homes e.g. Walnut Creek, Sunrise Meadows, Fairpark Village, etc. which show up as eligible areas for the USDA mortgage. On the other side of Fort Bend / Harris county, in Katy TX, there are several newer neighborhoods which qualify such as Westland Addition, Hawks Landing, Robertson, Windstone Colony, etc. which all fall within the USDA eligible areas. The point is, don’t assume it isn’t available.
How do I find out if a home qualifies?
The easy answer is ask your Realtor. However, for all the do it yourself people, the USDA has a website for verifying if the program is available for a certain home. Simply visit the USDA’s site by clicking here, then go to the property eligibility link and plug in the address.
Are there other qualifications?
Generally speaking if you qualify for FHA and the property is eligible for the USDA program, there is a good chance you qualify. USDA does have stricter requirements for income (cannot be too high), slightly higher credit scores, and family size. For specific info visit the USDA Guideline page by clicking here. Or simply speak with a lender who works with USDA loans (not all of them do).
Is there a limit to how much home I can buy?
No, you can buy any home for sale which qualifies. Regardless of whether the home is $100k or $500k, if you and the home qualify there is no upper limit to the amount you can finance.
So I can bring No Money to Closing?
USDA finances 100% of the cost of the home and the closing costs. However, it requires a 2% Upfront Mortgage Insurance Fee, and a 0.4% annual rate for the mortgage insurance, which is reasonable considering everything else is financed. To keep this simple, for every $100k spent it is $2k paid at closing and about 35 bucks a month in mortgage insurance. So on a $250,000 home on the outskirts of Richmond, you would pay $5,000 at closing and $88 a month for mortgage insurance. The upfront mortgage fee can be wrapped into the loan. Using our same example, the $250k could add the $5k in upfront mortgage insurance to the actual mortgage. So technically speaking, the USDA program loans up to 102% LTV (loan to value); this means if the home’s value (based on an appraisal) is $250k than the upfront mortgage insurance can be financed as well.
How does a USDA Loan compare to FHA or Conventional Loans?
The short answer is, if USDA is available than 90% of the time it is the best option. I didn’t include VA loans in this example as it is very comparable to the USDA program (without getting into too much detail). The long answer is quite too long for this article and is better explained by a lender. I will mention the downside to the USDA mortgage is a longer closing time frame (due to more paperwork and scrutiny during underwriting) and mortgage insurance, although it has one of the lowest rates, is never removed regardless of the equity of the house. Despite these downsides the USDA program is very competitive via interest rates and terms. If the home you are wanting to buy shows as eligible for the program I highly suggest getting your lender to run the numbers for you. Keep in mind, 99% of lenders do not check to see if the home is in an eligible area and therefore it is your job or your real estate agent’s job to let them know the home is eligible and you are interested in exploring it as an option.
Thanks for reading.. feel free to post or email any questions, arguments, or requests for more information on a specific topic or point.
Thanks & Keep Winning at Real Estate
Realtor at Keller Williams SW Houston
Sugar Land, TX
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Broker and its affiliates are real estate service entities. Any estimates of repairs, holding costs, sellers net profit, roi, etc. are for the convenience of real estate investors. Real estate investors are encouraged to verify all estimated numbers independently. For legal matters, lease to own options, tax advice, estate and business planning, and other matter beyond the scope of normal real estate transactions, please contact an attorney, cpa, appraiser, or certified financial adviser. Broker and its affiliates assume no liability either expressed or implied for the accuracy of any price opinions or estimates given.
Posted on April 15, 2013 at 4:24 pm by Jaymes McKenzie