USDA Rural Development has TWO “no down payment” home loan programs that can help a foreclosure owner achieve the sale of their home in today’s market. It’s not as simple as putting “no down payment” in your advertising, but if you understand both programs, you can successfully target people who will qualify.
First, your home must be in an eligible rural area. All USDA funds are focused on improving the standard of living in rural communities. This does not mean that your house should be in the middle of the forest. Roughly, their definition of “rural” is an area with a population of less than 10,000. You can check your home location to determine if you are eligible on the main USDA website. Locate the property’s Eligibility page and simply enter your address.
Next, decide which of the two programs best suits your home. The Home Equity Loan is for people with very good credit, scores over 620, and people with moderate to moderate income (125%) based on the median income for that county. The maximum loan amount is determined by your debt-to-income ratio.
The guaranteed home loan is a great program that requires no down payment. Sometimes Rural Development runs out of funds for this program, so please check the availability of funds before recommending it to potential buyers. Rural Development gets new funds at the end of each fiscal year.
The Rural Development Direct Housing Loan is like no other mortgage on the market and can really go a long way in selling your home. The funds for this home loan come directly from taxpayer money. It’s a little tricky, but even people on a fixed income can qualify for this mortgage. Few people know that it exists and I would say that it could be the only real subprime loan on the market today.
Income requirement is based on each county’s adjusted median income to qualify; Buyer’s adjusted income must be low to very low. Low is defined as 80% of the median income and Very Low is less than 50% of the median income! Yes, people with a fixed income, social security, SSI, and food stamps may qualify. Many of these loans are even subsidized by the government.
A subsidy is when the government makes part of the monthly mortgage payment so that these people can qualify. Under certain conditions, the subsidy has to be repaid.
The Direct Mortgage Loan does not use a credit score to qualify, but does have reasonable expectations about collections, judgments, and liens. The focus of this loan is on your credit history, not your score. It even has provisions for people who don’t use typical credit. If the buyer has alternative credit, such as a cell phone, utility, cable, or insurance in their name that “pays on time,” it can be used as credit history.
If applicants’ income is very low, Principal, Interest, Taxes and Insurance (PITI) cannot exceed 29%. If they are in the low income bracket, it can go as high as 33%. Total debt for any income level is 41%. Due to the government subsidy, people with income as low as $800 a month may qualify. Get this… part of your reimbursement income may include food stamps. How cool is that?
What about closing costs? There is nothing better than this. If the appraisal is sufficient, closing costs and repairs can be added to the loan if the seller is not willing to help the buyer pay them.
If I were a listing owner and my home would qualify on both location and sale price, I would use these qualification requirements on all of my FSBO listings and advertisements. (No money down and very low income may qualify) I would also pick up some Prequalification Preliminary Applications from the nearest USDA office and give them to prospective buyers who respond to my ad.
As a seller, you should also know that this loan takes two to three months to close. In today’s market that’s not a big deal. In either case, do not enter into a contract with someone applying for this loan until you have been issued a Certificate of Eligibility stating that you are eligible and how much you are eligible for. You should also know that your program has more funds available than Rural Development will ever be able to use.
