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Charles Shulman, CPA| NMLS# 21573
Vice President
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0% Down-Payment Home Loans . . .USDA, the last Frontier

0% Down-Payment Home Loans . . .USDA, the last Frontier

Frontier brings to mind windswept fields and plains dotted with distant homes and outbuildings.  Rural, you might say?  Maybe not.  As defined by the United States Department of Agriculture (USDA), rural actually has a very broad definition. And that’s a good thing for home buyers in select areas of the country.  Especially for those who have the ability to pay a monthly mortgage, but who don’t have a sufficient down payment saved.  That situation is not uncommon.  In a recent survey of young home buyers, coming up with a down payment was the second biggest barrier to purchasing a home.

The good news is, in many parts of the region, there is still a no-money-down mortgage option available. It’s called a USDA Loan and is specific to homes in rural areas as designated by the USDA -  the United States Department of Agriculture. There are many USDA eligible zones in New Jersey. These homes may be in small towns, exurbs and even suburbs outside of our major metropolitan areas. It’s worth exploring as you house hunt for your primary residence. Even the Jersey Shore has many communities with USDA eligible properties.  In fact, most homes on LBI are USDA loan eligible.

Like all mortgages, both the home buyer and the property need to qualify for a loan. With a USDA Loan, officially the USDA Rural Development Guaranteed Housing Loan, borrowers have fewer requirements than many conventional loans and need less money up front. In a nutshell, when a property and borrower meet the criteria, the USDA guarantees the loan made by the lender to the borrower enabling them to extend the credit without a down payment.

There are some basics to be aware of. Your Realtor may know if the home is USDA eligible, but s/he may not, so borrowers considering a USDA Loan need to do a bit of homework:

  • Confirm that the home is in a designated USDA Rural area using this link. http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do?pageAction=sfp You will need to accept the USDA disclaimer about the accuracy of the map. The USDA will not confirm that the property is eligible via the website (but it’s a pretty good guide). That will only occur AFTER an application is made. Once you click ‘Accept’ simply enter the property address on the next screen to see if the property is in a USDA zone.
  • Intend to use the home as a primary residence
  • Be able to prove ability and intent to repay the loan
  • Have a good credit history
  • Have a stable income that reflects the median household income (or is just above) for the community where the home is located. Again, your Realtor or a USDA approved lender can help you determine the income eligibility.
  • Work with a USDA approved lender

It takes just a moment to check out the specific eligibility requirements for a USDA Guaranteed loan, you can do that here: http://www.rd.usda.gov/programs-services/single-family-housing-guaranteed-loan-program . Your Realtor and USDA approved loan officer also can help explain more about the program.

If both the borrower and the property meet the criteria, the USDA has approved specific lenders in New Jersey, including NJ Lenders, who are able to extend a mortgage to cover 100% of the loan.  Only those approved lenders can work with you on a USDA loan.  Depending on the property itself, that loan can cover the purchase, improvements or building of a new home at that location.

So if your lifestyle enables you to explore home ownership in a USDA-designated rural area, your loan officer and Realtor may be able to help you find a qualifying home and a no-money-down mortgage.