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How Do I Qualify For A USDA Loan With 100% Financing

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How Do I Qualify For A USDA Loan With 100% Financing

This BLOG On How Do I Qualify For A USDA Loan With 100% Financing Was UPDATED On April 17th, 2019

By Gustan Cho

USDA Loan programs offer 100% financing.

  • A home buyer does not need to put any money down on USDA Home Loans
  • Home Buyers can purchase a home with zero money down
  • How about closing costs on the home purchase? 
  • On any home purchase transaction, there are closing costs that a home buyer is responsible for
  • However, a home buyer does not have to cough up any closing costs on a home purchase
  • As long as buyers can get a sellers concession towards the home buyers closing costs
  • In the event if the home seller does not want to give a sellers concession towards the buyers closing costs, lenders can give a lender’s credit
  • Lenders credit towards the home buyers closing costs can be given by lenders in lieu of higher interest rates
  • If the home buyer can structure the home purchase right, buyers can purchase a home with no down payment and no closing cost with USDA Loans
  • USDA loan programs do have a mandatory funding fee
  • But the funding fee can be rolled into the balance of the mortgage loan

100% Financing: No Down Payment Mortgage Programs

There are two government mortgage programs that offer 100% financing where the home buyer does not have to come up with any down payment on a home purchase.

  • USDA. loan programs offer 100% financing on a home purchase
  • But the property needs to be in a USDA approved location
  • Home buyers need to qualify for the USDA Loan not just with credit and credit, the borrower cannot exceed a certain amount of household income in order to qualify
  • If a home buyer is married and he or she is the only person on the USDA loan but his or her spouse is a wage earner but not on the loan, the spouse’s income will be part of the household income that is needed to qualify
  • USDA Loans has the guarantee of the United States Department of Agriculture’s Rural Development Single Family Housing Loan Guarantee Program
  • USDA Loans has been created to promote homeownership in rural and suburban areas throughout the United States
  • USDA Loans are also referred to as Rural Housing Mortgage Loans
  • USDA Home Loans is also referred to as Section 502 Mortgage Loans

VA Loans

The second government loan program that offers 100% financing are VA Home Loans. VA Loans is insured and guaranteed by the United States Department of Veteran Affairs. It is only available for members of the United States Armed Forces and its veterans with Certificate Of Eligibility (COE).

  • VA loan programs offer 100% financing with no money down required by veteran home buyers
  • There is a VA funding fee that is mandatory
  • The VA funding fee can be rolled into the balance of the VA loan
  • A 4% sellers concession from the home seller is allowed to offset and pay for the home buyer’s closing costs

Advantages Of USDA Loan And How Do I Qualify For A USDA Loan?

How do I qualify for a USDA Loan?

  • First the location the property is located at needs to be approved by USDA
  • To be qualified as a USDA location property, USDA is the only agency that will deem whether the location is a USDA zoned location
  • In general, to be classified as a USDA approved location, the location needs to be in a rural area or suburban area
  • The USDA loan program offers 100% financing and no down payment is required by the home buyer
  • There is an upfront USDA mortgage insurance premium just like FHA’s upfront mortgage insurance premium
  • The upfront mortgage insurance premium is 2%
  • Upfront mortgage insurance premium can be rolled into the balance of the USDA Loan
  • Just like FHA, USDA requires an annual mortgage insurance premium to be paid throughout the life of the USDA mortgage loan
  • Unlike FHA’s 0.85% annual mortgage insurance premium, USDA’s annual mortgage insurance premium is only 0.40%, regardless of whether it is 100% financing or 90% financing
  • USDA offers 30 year fixed rate mortgage loans
  • Homeowners can also do a USDA Streamline Refinance Mortgage Loans

How Does USDA Loan Program Work?

USDA is not a mortgage lender. USDA is a government agency that insures private residential mortgage lenders originating and funding USDA Section 502 mortgage loans against default.

  • Just like FHA where FHA is not a lender but insures mortgage lenders against default from homeowners
  • The purpose and goal of USDA is to encourage and stimulate home ownership in rural areas as well as underdeveloped areas in the United States

Income And Credit Qualification Requirements For USDA Loans

How Do I Qualify For A USDA Loan: Besides the property needing to be in a USDA location, the borrower needs to be qualified for USDA mortgage requirements.

  • The maximum debt to income ratios required is 28% front end ratio and 41% back end  debt to income ratios
  • There is also a maximum income cap
  • Borrowers cannot be making $500,000 per year and qualify for a USDA loan
  • The borrower’s household income cannot exceed 115% of the county’s median income
  • Maximum income requirements vary from county to county
  • As mentioned earlier, if married and are the only person going on the loan, spouse’s income will be counted towards household income even though she is not on the mortgage loan
  • Borrowers need a 580 credit score to qualify for USDA Loans

USDA loans are only for owner occupant primary homes. Second homes and investment homes do not qualify for USDA Home Loans. This blog on How Do I Qualify For A USDA Loan Was UPDATED on April 17th, 2019.

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