Massachusetts Real Estate

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USDA Loans Mortgage Option For Low to No Down Payment

USDA loans (US Department of Agriculture) aka Section 502 loans are an excellent mortgage vehicle for those who do not have money to put down but have decent credit ratings. Typically a credit score over 600 will get the loan done. A score between 580-600 will come under much heavier scrutiny but will not rule out the borrower.

You heard that correctly...with a USDA loan you can do 100% financing!

These loans are typically used to help low to moderate income households purchase homes in rural areas. These loan products are backed by the Federal government.

In order to qualify for a USDA mortgage loan you can only have an income up to 115% of the median income for the area you are interested in buying a property.

The guidelines also include repayment viability based on P.I.T.I (Principle, Interest, Taxes, and Insurance) divided by gross monthly income being less than 29%. Total debt divided by gross monthly income must also be equal to or less than 41%.

One of the other great benefits of the USDA loan is that there is no mortgage insurance required. This can save the borrower quite a bit of money!

In my experience, unless you are in a heavily populated city the definition of rural is pretty loose. Many areas that you may not consider to be rural in your mind may qualify for a USDA loan. Areas that have a population under 20,000 will probably be ok in most circumstances.

It would be a good idea to check with a qualified mortgage professional to see if a USDA loan could work for you. Not all lenders work with these type of loan products as they are more paperwork intense.  

               

For additional information on USDA loans I would suggest visiting the USDA loan website (click here).

If you are located in Massachusetts and want to know if you qualify based on the income limits for a specific area you can visit Massachusetts USDA offices which can provide you with the local income limits based on the county that the home is located in.

If you are located in another state here is the link to the USDA State & local offices.

If you find that you do not meet the income requirements for a USDA loan you may want to think about an FHA loan. There are no income restrictions with an FHA loan and as of January 1st 2009 you will only need to have a 3.5% down payment.

I have noticed a lot of misinformation lately about the lack of mortgage money available. It seems the media loves to promote the doom and gloom of the Real Estate market. While it is true that mortgage lenders have really tightened their belt and are not lending to anyone that walks into their office, anymore there is plenty of funding available to those that have a job with a steady income and a decent credit rating. So don't assume you can not get a loan!

This is one of the best times in our history to buy a home. It is rare that we have seen an interest rate environment where rates are so attractive, combined with a significant drop in housing prices!

Once you have a mortgage loan and you are in your new home, there are tax deduction to remember when getting a home loan.

This is a handy list of items you will want to remember come tax time in April.

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The above information on USDA Loans another mortgage option for low to no down payment was providedRE/MAX Executive Realty Hopkinton by Bill Gassett, the team leader for the #4 RE/MAX Team in Massachusetts in 2007. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-435-5356. Bill has helped people move in and out of many Metrowest towns for the last 22+ Years. Bill's office is conveniently located in the center of Hopkinton MA at 77 Main Street.

I have a passion for Real Estate and love to share my marketing expertise! 

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Bill Gassett is a thirty-two year veteran to the real estate industry. He enjoys providing helpful information to buyers, sellers and fellow real estate agents to make sound decisions. His work has been featured on RIS Media, National Association of Realtors, Inman News, Placester, RESAAS, Credit Sesame and others.

Comment balloon 53 commentsBill Gassett • December 22 2008 07:32AM

Comments

Bill, I have heard about these loans in the past but have never heard of anyone utilize them.  Great info and it is great that these programs are still out there for people.  In our area a high percentage of loans are FHA.

Posted by The Somers Team, Real People. Real Dreams. Real Estate. (The Somers Team at RE/MAX Access) almost 11 years ago

Chris & Stephanie I just started seeing the USDA loan being utilized in my area. It is good for those that do not have a down payment but meet all the other criteria for getting a loan such as good credit, proper income, income to debt, ect. The FHA of course has been real popular.

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) almost 11 years ago

Bill:  Great article.  The Wall Street Journal also recently published an article about these loans.

Posted by Kathy Torline, Colorado Springs Real Estate Blog 719-287-1049 (ERA Herman Group Real Estate) almost 11 years ago

Thanks Kathy. I missed the Wall Street article but I can see why thye would want to write about the USDA loan option.

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) almost 11 years ago

Good information, Bill. I read about these the other day in the WSJ. Great stuff for consumers to know about as another option.

Jeff

Posted by Jeff Dowler, CRS, The Southern California Relocation Dude (Solutions Real Estate ) almost 11 years ago

We are seeing more and more loans like this in today's market....the problem for us...not many Daytona Beach zip codes work but if you get west of 95 you have a better shot!  Happy Holidays Bill and wishing you and yours a very healthy, happy and prosperous 2009!

Posted by Midori Miller, Online Marketing For Real Estate Professionals (Talk 2 Midori, LLC) almost 11 years ago

Jeff - There are some home buyer's that would love to be able to purchase but have heard so many reports in the media that it is no longer possible to get a "no down payment" loan. I am trying to let anyone reading know that the USDA loans are a good product if you live in a rural area.

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) almost 11 years ago

Midori - that is understandable in your area of Daytona Beach. I have visited there a few times. I am jealous:)

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) almost 11 years ago

Bill, this is a great loan for people that like in the right area. I have yet to do one of them, so I can not even state how long or short it takes to get one done.

Posted by Danny Thornton, WordPress Guru (R & D Art) almost 11 years ago

Great, great info Bill.  I didn't know about USDA loans and will have to look into them further.  Very helpful for homebuyers.  This is a great time to buy indeed!

Posted by Patricia Beck, Colorado Springs Realty (RE/MAX Properties, Inc., GRI, CDPE) almost 11 years ago

Danny - My experience with the USDA loan is that they take a little bit longer because they are paperwork intensive.

Patricia - They are certainly worth looking into if you work with 1st time buyers and those that do have a lot of money saved for a down payment.

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) almost 11 years ago

Missouri still offers USDA loans.  This is about the only 100% financing available right now.  Buyers should be standing in line to get their loan.

Posted by Kay Van Kampen, RealtorĀ®, Springfield Mo Real Estate (RE/MAX Broker, RE/MAX) almost 11 years ago

I utilize them on a regular basis and if everything continues as it has since I started utilizing them, it appears that in 2009 that as much as 50% of my business will be a USDA loan. 

Posted by Julie Chapman, New Homes Sales Lakeland Florida (DR Horton ) almost 11 years ago

USDA can be a great purchase option for folks that meet the income and location requirements. Surprisingly, many locations on the Cape can qualify as well as western RI and parts of Aquidneck island (the Newport area). The seller concession can also be more liberal than FHA, Fannie or Freddy. The above mentioned debt ratios (29/41) are guidelines and can be exceeded with strong compensating factors (high credit scores significant liquid assets, etc). However, it is highly recommended (by me ;) ) to stay within the specified ratios for reasons beyond qualification, ie: cash flow is king, especially in this economic climate. Just 'cause you can, doesn't mean that you should! Also, a FHA appraisal is not required, but the appraisal should be done by a FHA approved appraiser as underwriters may ask FHA "like" questions.

Great post, Bill! USDA is a product that can get more people off the sidelines and calling YOU!. If I can assist in  way, let me know. I'm individually licensed in MA, CT and RI.

Happy Holidays!!!

Posted by Sean Wheelan (Qivana) almost 11 years ago

Thanks for the info Bill, Yes the USDA loan program has been hitting the Internet Real Estate info pretty hard lately.  Hope it lasts.

Posted by Gabe Sanders, Stuart Florida Real Estate (Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales) almost 11 years ago

Kay - I would expect more buyers to come off the sidelines this coming year. The interest rates are just too low to pass up. Whether it is a USDA, FHA, or conventional loan we are at historic lows.

Julie - It is great that you are in an area where you can utilize the USDA loan product. They are just starting to become more popular out here in MASS.

Sean - Thanks for you input. I agree with you 100% about staying within your means...that is part of the problem we are faced with today. Far too many people purchased homes that they had no business buying.

Gabe - You are right. The USDA makes sense for those that do not have a large down payment.

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) almost 11 years ago

Great information Bill - I am just learning more about these loans and the more I hear the better they sound.  I even live in an area just south of downtown Raleigh that qualifies!  Pretty neat!

Raleigh Realtors!

Posted by Lee & Pamela St. Peter, Making Connections to Success in Real Estate (Berkshire Hathaway HomeServices YSU Realty: (919) 645-2522) almost 11 years ago

I think the USDA is a great program and I use it every chance I have which is limited to specific areas.  I have two communities I work that are approved and the 100% financing is a rare thing these days.

Posted by Mark Watterson, Utah Real Estate almost 11 years ago

Bill, "there is plenty of funding available to those that have a job with a steady income and a decent credit rating. So don't assume you can not get a loan!

This is one of the best times in our history to buy a home."

Couldn't have said it better!

Posted by Gena Riede, Real Estate Broker - Sacramento CA Real Estate (916) 417-2699 (Riede Real Estate, Lic. 01310792) almost 11 years ago

You are absolutely correct! I just recently closed one of these deals, and the family is so HAPPY to be in their new home for Christmas. With the limited 100% loans that are available now...this is a very wise option. GREAT STUFF!

With Christmas just around the corner, I want to take a moment to let you know how very much your friendship has meant to me over these past months. You are a blessing! May your Christmas be filled with peace and joy! ~GBU~

Posted by Elizabeth Nieves, Bilingual Raleigh - Durham North Carolina Real Estate Team (The Elizabeth Nieves Realty Group) almost 11 years ago

Lee & Mark - Thanks for your comments on USDA loans. I am glad these type of loan products are working in your area.

Gena - I am tired of hearing that it is difficult to get a loan. The people that can't get a mortgage are the people that should never have been able to get one in the 1st place.

Elizabeth - Good to hear that you have been able to get qualified buyers into the USDA program. Your friendship has been great as well!!

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) almost 11 years ago

I have used USDA loans for a couple of buyers earlier this year when the banks turned them down even though they had a 680 median score; documented self employed for husband & long term straight employ for wife and $4K in savings. I asked why and the buyers were told that wife had too low a score, ie no credit cards in her name alone.?? go figure.

Most of Lincoln County is under USDA, so I always keep that as a hole card when the buyer gets frustrated & thinks of backing out of the "mortgage game" because of the bank's criteria. Yes it is more paperwork and verifying but once you get through the paper mill; it goes fast and the client is one happy person. This is what makes our job so rewarding & exciting.

Posted by George Wilson (Lincolnton, NC) almost 11 years ago

Hi Bill,

You are absolutely right.  The usda loan is a great product and in my opinion better the chafa that CT. provides. 

Posted by Anonymous almost 11 years ago

George the USDA Loan I suspect will continue to grow in popularity this year for those that don't have a large sum of money saved yet have good enough credit and want to take advantage of the awesome rates.

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) almost 11 years ago

Hi Bill!  This is going to be HUGE in '09!  With rates as low as they are AND prices contributing to more properties that qualify for these loans, I think we're going to see an early surge in Q1.  I'm with you--the doom and gloom media has John Q thinking that NO banks are lending right now!  It's up to us to spread the word that they ARE indeed!

Merry ChristmasMerry Christmas

Posted by Debe Maxwell, CRS, Charlotte Homes for Sale - Charlotte Neighborhoods (www.iCharlotteHomes.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310) almost 11 years ago

Bill,  This loan has been a staple in my area for many years and it is a really great financing option.  This USDA loan can also be used to REHAB houses. Yes they have a product where your borrower can get bids to fix the house up and then borrow enough more money to pay for the repairs.  The work does not need to be done by a licensed contractor necessarily but does need to be completed within 30 days.  There are only limited areas that qualify so check with your local Rural Housing office.

Posted by Kathy Fuhriman (Bear River Valley Realty) almost 11 years ago

Bill,

This is a good program.  However, the gotcha with most folks is the "good credit rating".  Everyone is taking hits these days.

 

Posted by Mick Michaud, Your Texas Lifestyle is Here! (Distinctly Texas Lifestyle Properties, LLC Office:682/498-3107) almost 11 years ago

Debe - I have yet to have a buyer get turned down for financing. The USDA will become more and more popular as people become aware of this option.

Kathy - Thanks for mentioning the re-hab option. I did not touch on that in the post.

Mike - I am not so sure that everyone is taking a hit. There are plenty of borrowers that have been prudent with their finances. There are plenty of conservatives still around:)

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) almost 11 years ago

Good post Bill....the media is always about doom and gloom, aren't they? So FHA will increase their down payments from 3% to 3.5%?

Merry Christmas Bill! ;-)

PepperWreath

Posted by Mesa, Arizona Real Estate Mesa Arizona Realtor, AzLadyInRed (Homes Arizona Real Estate LLC) almost 11 years ago

I wish there were more people spreading the attitude stated in this article, that there is in fact mortgage money available for most buyers who are "pretty solid".  Not everyone, but most, can still get a mortgage if it doesn't have to be "creative"

Posted by Ray Cox (ERA Brokers Consolidated) almost 11 years ago

Hi Teri - As on January the minimum down payment for an FHA loan will increase to 3.5%.

Ray - People that should be able to get loans still can and that is the bottom line.

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) almost 11 years ago

I can't believe it!  I just heard some good news on CNN -- the mortgage applications last week were up and people are more optimistic!  This is great news for buyers and sellers.  

Posted by Joan Whitebook, Consumer Focused Real Estate Services (BHG The Masiello Group) almost 11 years ago

Bill - These loans are an option in a lot of the outlying areas around Charlottesville.

Have a wonderful Christmas!

Posted by Pam Dent, REALTORĀ® - Charlottesville Virginia Homes / Horse (Gayle Harvey Real Estate, Inc.) almost 11 years ago

Happy Holidays Bill!! Hope you are enjoying it!

Posted by Samantha Nichols, Massachusetts Real Estate Specialist (ERA Belsito and Associates) almost 11 years ago

Joan & Pam - The USDA loan product could become a much common mortgage this year as it will help a segment of the market that has lost a lot of the previous options.

Sam - Thanks, you too!

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) almost 11 years ago

just wanted to stop by and say , Happy Holidays, Merry Christmas, and all the best to you and your family for a healthy and happy new year and an even better 2009 -

Posted by James Wexler (wexzilla.com) almost 11 years ago

James thanks my friend you as well.

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) almost 11 years ago

Bill there was a time in rural area when this were very popular.  Now that many of the other options are no longer available this type of loan will once again be an attractive option for many who still have the desire for home ownership.

Posted by Jennifer Fivelsdal, Mid Hudson Valley real estate connection ( JFIVE Home Realty LLC | 845-758-6842|162 Deer Run Rd Red Hook NY 12571) almost 11 years ago

Jennifer you hit the nail on the head. The USDA loan is making a big comeback!

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) almost 11 years ago

Bill - Outstanding explanation of the USDA loan, it's a really viable option for many buyers today!

Posted by Debbie Summers (Charles Rutenberg Realty ) almost 11 years ago

 Thanks Debbie I appreciate the compliment on my article.

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) almost 11 years ago

Your breakdown of all the aspects of these loans is SO very helpful for my "studies"...this stuff takes awhile to sink into my brain, but the way you've organized it and explained it has me motivated to understand this really well. THANK YOU for a fantastic job..As long as consumers have good credit, this is the best progam available.

Posted by Mara Hawks, Inactive-2012 REALTOR - Homes for Sale Auburn Real Estate, AL (First Realty Auburn ) almost 11 years ago

Mara thanks for your compliments on my article on USDA loans. These will become on of the most popular choices for those that have limited down payments.

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) almost 11 years ago

Rural loans are available and popular here in Elkhart County Indiana.  You are right, some of the approved areas are not that far away from mainstream.

Posted by Evelyn Johnston, The People You Know, Like and Trust! (Friends & Neighbors Real Estate) almost 11 years ago

Evelyn there are many areas you would think may not qualify for the USDA loan under the term "rural" however, that is not the case. The USDA loan will become a very popular mortgage vehicle this year.

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) almost 11 years ago

Hello Bill, thanks for the information about USDA Loans.  I wasn't previously familiar with them, so appreciate the info.  I'm not sure that any areas here will qualify (based on the population requirements), but will investigate to make sure.  Regarding FHA, I've had more and more Buyers with FHA Financing. 

Posted by Vickie Arcuri, South Florida Luxury Real Estate (ONE Sotheby's International Realty) almost 11 years ago

Bill - I hope you had a wonderful Christmas!

Here in Tennessee, almost everything is Rural just over 10 miles from downtown Nashville! How scary is that? LOL

BTW you have recieved the Lemonade Award.

Posted by Connie Harvey, Realtor - Nashville TN Real Estate (Pilkerton Realtors) almost 11 years ago

Vickie & Connie I am glad I have been able to make you aware od the USDA loan program. One of the real benefits besides the fact you can do 100% financing is that there is no mortgage insurance required. Obviously this can save the borrower quite a few dollars.

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) almost 11 years ago

Yes - This option is going to be a great for so many people!!!

Posted by Jason & Amber Gardner, We're Committed to Your Success! (Hasson Company, Realtors) almost 11 years ago

Amber - You are right thr USDA and FHA loans are both going to be very popular in 09.

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) almost 11 years ago

  I live in a small rural community where they do Rural Development Loans everyday!  People are getting into homes with 0% down and only the cost of a credit report and appraisal fee.  Last week the credit score requirements went way up.  Most of our local foreclosures have been a result of this type lending and of course the price of gasoline tripling and huge job losses also had a little to do with the start of this collapse.  The question is, do we want to help every American become a home owner, or will home ownership for the lower & middle class be a thing of the past?  We may become a Nation of Renters yet.

Posted by Steve over 10 years ago

You know, this is one of the few SAFE 100% financing loans out there. In the old days, 100% financing was just a game of russian roulette, getting shot was inevitable! With a rural developement loan, VA loan or here in Utah we have another 100% financing option called Utah housing loans   the chances of foreclosure are practically zero. The interest rates are always great, and buyers remain protected through the term of the loan, meaning that there are no surprise interest hikes every year, or heaven forbid! you find out that you have a neg am loan!!! (Whoever came up with that idea should be shot!) Bill, great option for all buyers!

 

Posted by Jeff Winn over 8 years ago

I have two homes listed right now that qualify-- it's just a little sliver through the Gulfcoast of Florida. Two great homes right off the Manatee River, where it empties into Tampa Bay. I can't imagine that would just be perfect for a first time homebuyer. It is such a great and unique opportunity.

Posted by Roberta (Bobye) Chasey, GRI,ePRO,SRES,SFR (Chasey Realty Inc.) over 8 years ago

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