Does a home loan with no down payment and decent rates sound too good to be true? It isn’t.
No money down, good interest rates, and the ability to finance closing costs. It may sound too good to be true, but in fact it’s a U.S. Department of Agriculture guaranteed rural development loan. It just may be The Best Loan for Tennessee Country Living.
The USDA provides extremely attractive loans to people in certain rural locations, as an enticement to settle down and develop new areas of the country. The Department of Agriculture uses population data from the US Census and other factors to determine which areas of the country count as “rural,” and then allows buyers in these areas (who meet a few other requirements) to get a USDA-backed loan from an approved lender.
Although we are experiencing great economic growth in the Upper Cumberland Region of Tennessee, many areas are eligible for these type loans. My listing at 611 Amanda Drive in Cookeville TN is in an eligible area and is priced just right for the first time home buyer.
Ag Department-backed financing is so attractive because it requires no money down but still has rates competitive with other government mortgage products. FHA loans, the most common type of government loan, require minimum, 3.5% down payment and saddle low-credit buyers with costly mortgage insurance premiums. USDA mortgages only require a small annual fee and a low upfront premium. However, that premium can be rolled into the mortgage, giving buyers the option of getting financed with a 0% down payment.
The catch is the Department of Agriculture limits who can get one of these loans. If you make more than 115% of your area’s median income or already have adequate housing you’re not eligible for USDA financing. You’re also required to purchase housing that is “modest in size, design, and cost” and meets various building codes.
Then there’s the matter of credit. Talk to your lender to see if you qualify. Most importantly, you must live in a specific area defined by the USDA as rural. The department provides a map showing which regions are eligible. Your lender can help you determine if a home is in an eligible area.