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Buying the farm

USDA offers zero-down rural home loans

The USDA’s Rural Development Loans opens the home buying market up to more potential homeowners. Photo credit: J.M. Simpson

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A home loan from the United States Department of Agriculture (USDA) is one of the best-kept secrets in the home buying market.

Often referred to as the USDA Rural Development Loan, it is a zero-down, 100-percent financing home loan designed to promote home ownership in less-dense communities across the nation.

"Buying rural real estate is building your own wealth," wrote Terrie Bethel, the branch manager of Skyline Home Loans, in an email. "Most times, your house payment can be the same or less than what someone is paying for rent."

To be eligible for a USDA home loan, there are two main factors to consider -- the property and the homebuyer.

"It's a small box that borrowers have to fit in, but it's a great program if they do," wrote Tommy Xintaris, formerly of Envoy Mortgage, Austin, Texas, in a news release. "Both the property and the borrower have to qualify."

First, the home must be located within a USDA-eligible area.  

"In the South Puget Sound, the properties zoned USDA can be harder to find," continued Bethel, "but they are out there."

Gig Harbor, Spanaway, DuPont and Graham are good areas where rural property can be found.  

"Your lender can check addresses of properties you are interested in to check eligibility along with checking income eligibility," she added.

If the property is deemed eligible, then the borrower must meet income and credit standards.

"Borrowers must have a low-to-moderate income and yet be able to afford the payments on the property," added Paul Defngin, a mortgage planner with Apex Home Loans in Rockville, Maryland, in a news release. "USDA has established income limits.  Borrowers can enter their ZIP code, income and number of members of the household and know immediately if they qualify for the program."

To check on income and property limitations by county, visit https://eligibility.sc.egov.usda.gov.

USDA loans are not meant to finance farms or large acreage; rather, they are to purchase single-family homes that will serve as the buyers' primary residence. A potential buyer does not have to be a first-time homebuyer to use the USDA rural loan program. The program, however, is not available to investors.

There are clear advantages to buying a home with a USDA loan.

"There is no down payment required, it is literally zero percent down, larger property potential, and (there's) less likelihood of a homeowner's association," continued Bethel.

An applicant should have a 24-month history of dependable employment to qualify, plus adequate income from that employment.

The applicant's income determines the maximum loan size, which ensures a reasonable loan. The USDA loans are available in 30-year and 15-year with fixed-rate mortgage options. The USDA guarantees the loans. This means the department backs the lender for properties in designated rural areas.  Should the borrower default, the USDA reimburses the lender.  

This helps lenders like Skyline Home Loans approve loans with zero down at very low mortgage rates.

"Borrowers are building wealth, tax credits (and) freedom of ownership," concluded Bethel.

For more information, visit rd.usda.gov.

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