You have two main choices when it comes to no down payment home loans. One is open to everyone with some restrictions and one requires military service.
You might not know it, but the USDA is about more than agriculture. They also guarantee home loans in rural parts of the country. You might think that you do not want to live way out in the country but the USDA definition of rural is quite liberal. The population merely has to be under a certain level which basically limits you from living inside of major cities. You can usually find a close suburb of that city that will qualify under the USDA. If you are not afraid of a bit of a commute or already work in the suburbs of a major city, you are in business.
What is a USDA home loan?
A USDA home loan is a program that provides zero down payment loans to moderate and low income buyers in rural areas. For very low income home buyers, the program issues loans directly from the USDA. In addition, the program guarantees loans issued by other lenders.
Why choose a USDA home loan?
The biggest advantage to a USDA loan is the down payment requirement, there is none. It is perfect for the first time home buyer because coming up with that big down payment is one of the toughest things for a borrower.
In addition, this type of loan allows a borrower to roll in closing costs. This is the only loan where you can do that and actually finance more than 100% of the value of the home. Sellers are also allowed to pay up to 6% of the loan closing costs.
Another great thing about this loan type is that the mortgage insurance is cheaper than with a FHA loan. It is less than half of the price of FHA mortgage insurance, in fact, it is almost a third of what you would pay with FHA.
What are the USDA loan requirements?
First, there are income limits with a USDA loan. These limits will vary depending on where you intend to live. You must be of moderate income, meaning that you can not make more than 115% of the areas median income. The income limit will be higher if you have more dependents in your home.
As far as credit is concerned, you must have a 640 credit score to qualify automatically. If you have lower credit scores, you may still be able to get a USDA loan but additional underwriting will be necessary.
In addition, you must be a US citizen or qualified alien, the property you intend to buy must be in a rural area, it must be your primary residence and you need to work with a USDA certified lender.
What homes qualify for a USDA loan?
Just about all types of property will qualify for a USDA loan as long as it is in a rural area. This can include some condos, town-homes, single family homes, new construction and FHA approved modular homes.
The term rural area is used rather loosely as well. Nearly every part of the country will qualify as rural. You simply have to be in a city of fewer than 50,000 residents. This opens up a lot of suburbs of major cities.
If you are looking for a USDA direct loan instead of a guaranteed one, there are additional criteria. The home can not be greater than 2000 square feet, no in ground pools are allowed, the property can not be used to make income and the market value can not exceed the areas loan limit.
VA loans are available to those with military service. To qualify, you must meet at least one of the following conditions.
- You have served 90 consecutive days in wartime.
- You have served 181 days in peacetime.
- You have more than 6 years of service in the National Guard or Reserves.
- You are the spouse of a service member who died in the line of duty.
What is a VA home loan?
A VA loan is a loan that is given by private lenders to service members or spouses of service members who meet certain qualifications set by the VA. The loan is guaranteed by the VA and comes with a number of benefits over traditional financing.
Why choose a VA loan?
The biggest reason to choose a VA loan is the lack of a required down payment. It is one of only two loan types that do not require a down payment of at least 3.5%(FHA).
Another great feature is the lack of a requirement for mortgage insurance. This can save borrowers hundreds of dollars a month. Loans such as FHA have up front and annual mortgage insurance requirements. This adds $200 to $300 a month to even a moderate home.
The loan also allows buyers to pay all of the closing costs associated with the loan and these loans have the lowest interest rates of any loan program.
Really, if you qualify for a VA loan, there is no reason not to choose one.
What are VA loan requirements?
The first stipulation is that you must, of course, meet the service requirements mentioned earlier. You must meet one of the following requirements. Have served 90 straight days in wartime, 181 days in peacetime, 6 years in the National Guard or Reserves or be the spouse of a service member who has died in the line of duty.
As far as credit scores go, the VA does not set a minimum credit score. This does not mean that there is none though because loans are issued by private lenders who will impose their own minimums. in most cases, a 620 credit score or higher will be required. This is a reasonably easy score to achieve but this requirement does rule out those with very bad credit.
With income, the VA is strict about borrowers having sufficient residual income. This is income after the mortgage is paid that can be used to pay for other expenses and emergencies. They want to decrease the risk of foreclosure by making sure that homeowners have sufficient money to ay for emergencies.
What homes qualify for VA loans?
The first requirement is that the property be a residential one, not commercial. The property must also be occupied by the buyer, so no rental property.
In addition, the VA will look for a number of Minimum Property Requirements that must be met ring the VA appraisal. They are basically looking to see that the home is safe and structurally sound. They will look at the roof, foundation, water supply and look for any termite damage. They want a home that is move in ready and that will hold its value.