Here’s What To Know About The USDA Loan Program For Some Borrowers
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Financing a home may be more accessible than you think.
You’ve probably heard of Fannie Mae and Freddie Mac, two entities created by Congress that buy and guarantee mortgages through the secondary mortgage market to expand opportunities for home ownership and affordable rental housing.
“These are the biggest pieces [of home loans]”said Joel Kan, associate vice president of economic and industrial forecasting at the Mortgage Bankers Association in Washington, DC.
If you are able to deposit 20%, you will likely qualify for a lower interest rate and avoid paying for private mortgage insurance, resulting in a lower monthly payment.
Since the median price of a house in the US is $ 248,857, some people might have a hard time getting their hands on nearly $ 50,000 in cash to deposit. Some low down payment programs are also available, Kan says, although they often come with additional requirements such as having a good credit rating, paying higher interest rates and possibly additional or higher fees to match the higher risk.
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But there is another secret program that offers loans without a down payment, and it is offered by the United States Department of Agriculture.
It’s only a fragment of the market – around 1% to 2%, according to the Mortgage Bankers Association – but it definitely makes a difference for some Americans.
From October to June, the agency issued just under 100,000 loan guarantees totaling $ 15 billion, compared to 67,435 loans of $ 10 billion for the same period last year. The amount of money available changes every year.
“A lot of people don’t associate the USDA with home loans,” said Mike Jones, national sales manager for Union Home Mortgage. The Strongsville, Ohio-based lender is licensed in 44 states and offers most traditional mortgage types, including USDA loans.
USDA set fees low, Jones says: one-time fee of 1% of total loan and 0.35% for private mortgage insurance.
The demands for these loans without down payment are increasing. In the first two quarters of 2020, Union Home Mortgage processed 684 claims totaling $ 98.3 million. For the same period in 2019, it received 455 requests, for $ 59.4 million.
Two things to know: income limits and square footage requirements.
USDA loans are intended for borrowers with low to moderate income. “Most limits are set at 15% above median income [in an area]”Jones said. You can usually make around $ 9,000 above that level.
“This is done at the community level,” Jones said, noting that income limits may differ even within a given state. “In areas where the cost of living is high, you might have a higher income. “
For example, in suburban Cleveland, a family of four could earn up to $ 69,000, assuming a median income of $ 60,000.
Loans are not meant to help someone who earns $ 250,000 per year and if your salary is too high you will not qualify. Having 20% available for a deposit will also disqualify you. USDA loans are designed for people who cannot get approval for a conventional mortgage.
Another factor is the size of the population. Loans are not available for densely populated cities like New York, Cleveland or Columbus, Ohio. “But many suburban areas qualify because of their size,” Jones said. For example, Medina County in Ohio has a large number of townships with qualifying properties.
Jones suggests borrowers start with the eligibility card. Click on “Guaranteed Single Family Home” and you will be asked to agree to a disclaimer stating that the information is only preliminary and not an actual determination.
You can then research the property’s eligibility and community income limits.
The city of Putnam Valley, New York, just an hour from Manhattan, seems to fit the criteria.
In 2018, the population was only 11,600. The median house price is $ 400,000, according to real estate site Zillow, but two addresses, listed at $ 299,000 and $ 218,500, both identify as being located in an eligible area. A household of four could earn up to $ 130,750, after tax deductions, while still being eligible.
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