People to be a homeowner in Massachusetts and Rhode Island and think you need 20% down or even 10% or 3% down, there is a loan program for you that is 100% financing of the purchase price. Not all properties will qualify for this loan program because, as the name infers, you must be in a rural community.
The USDA loan is designed to help those in rural areas purchase a residential home. Fortunately, the USDA’s definition of rural is generous and many suburbs of larger areas qualify.
According to the USDA, rural areas are defined as open country, which is not part of an urban area. There are also population requirements that can reach up to 35,000 depending on area designation.
To find eligible areas, you can use our property eligibility map here. Although the map is helpful, is best to speak with a USDA lender to determine eligibility.
The down payment requirement — or lack thereof — is why so many buyers choose the USDA loan program once they learn of the program that is. No down payment is required, making it one of the few 100% financing home loans available in today’s market.
The only other widely available zero-down loan is the VA mortgage, eligibility for which is gained by adequate military service.
For civilians, USDA loans are likely the only no-down mortgage option. Following are minimum down payment requirements for all major loan types.
- Conventional loans: 3% down
- FHA: 3.5% down
- VA: 0% down
- USDA: 0% down
- Conventional without PMI: 20% down
It would take years for many families to save 3% down or more. During that time, home prices can go up, making saving a down payment even harder. With USDA, home buyers can purchase immediately and take advantage of increasing home values.
WHAT ELSE YOU MUST KNOW:
Even though the loan program is 100% financing, people often think this means no-money down. This is a big misconception with these loan programs. You are financing 100% of the purchase price, the Veteran will still need money for a down payment and closing costs. The 100% only refers to the purchase price. The typical down payment is 3% of the purchase price. This money does get applied to the downpayment on the purchase price and typically this will go back to you, the Veteran, at the closing and after the closing costs and pre-paids have been deducted.
The reason that you still have to put down some money is because you are submitting an offer on a home and you need to have what is called “consideration” for the contract. Consideration is what binds the legal contract, without it, it’s not a contract. But the biggest reason is that you are asking a seller to stop marketing the home and miss out on other buyers. If you don’t put “skin in the game”, how do you expect a seller to trust that you will go forward with the purchase. A seller wants you to put some money at risk so that is their insurance that you will move forward and not walk away. See EARNEST MONEY for a more detailed explanation.
If you would like more information or to get pre-approved for a USDA 100% Financed Loan, I would encourage you to speak with either of our trusted lenders:
Rebecca Gilbert – Randolph Savings or John Faria – Province Mortgage
The other 100% financing program is VA. Click HERE for more info.
NerdWallet: USDA Mortgages
Best Loan You’ve Never Heard Of
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