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Moving to the Country? This Overlooked Loan Makes It So Easy

September 22, 2020

country home

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With the COVID-19 pandemic still going strong, many city dwellers may be considering a move to the country—and there’s a specific type of mortgage that can help make this a reality, called a USDA loan.

Offered by the U.S. Department of Agriculture and backed by the agency’s Rural Development Guaranteed Housing Loan Program, these mortgages are designed to help buyers with moderate or low income purchase property outside cities.

They accomplish this by offering several key benefits—such as low or no down payments and looser qualifications for income and credit history.

“More people should absolutely consider using USDA loans to finance their homes,” says Jan Hadder, regional vice president of the builder division at Silverton Mortgage in Columbia, SC. “If you’re not living in the city, this can be a great option to finance your home.”

USDA loans could be a boon to the wave of buyers who are currently contemplating fleeing cities right now.

As it happens, searches for homes in rural ZIP codes jumped more than 15% this May, compared with a year ago, according to realtor.com® data.

Yet many Americans aren’t aware of USDA loans, or assume that they don’t qualify. They may also have other assumptions about these mortgages that aren’t true or in step with recent changes in the terms.

If you want to avoid overlooking this hidden financing gem, here are a few things to know about USDA loans today.

You don’t have to buy a house in the boonies

The biggest misconception about USDA loans is that you have to live in the middle of nowhere.

In reality, homes qualify as long as they’re located outside a metropolitan area. In fact, communities with populations of up to 35,000 may be fine. The USDA offers an online map where you can search for properties that are eligible for the loans.

Matt Ronne, a loan originator at Motto Mortgage Preferred Brokers in Athens, TN, says USDA loans are a “vital asset” to home buyers in his area of southeastern Tennessee.

“It has been a high-demand product,” he says. “My county, McMinn, and most of the surrounding counties are 100% eligible for this type of financing, as long as those clients meet the credit, income, and property requirements.”

You don’t have to be destitute—and income limits recently increased

“Many people think that the USDA loans are meant to be subsidized housing, or that they are only intended for use by those with very low income,” says Gwen Chambers, a mortgage loan originator at Motto Mortgage Superior in Germantown, TN.

But that’s not the case. There are actually two types of USDA loans. Direct housing loans are for low-income individuals; guaranteed loans are designed for moderate-income buyers.

The USDA recently increased its income limits for loans, allowing more home buyers to be eligible. In most locations, the income limit for households with one to four people is $90,300, and $119,200 for households of five to eight people.

USDA loans are easier to get than ever

The income limits have been raised, Hadder says, and some elements of the application process for certain USDA loans have been relaxed.

For example, in response to COVID-19, the period for which certificates of eligibility are valid has been extended for some borrowers, and some parts of the application process will be streamlined, including credit reviews and loan processing.

Although the specifications vary by lender, borrowers typically need a minimum credit score of 640, whereas conventional home loans often require a credit score of 700 or higher.

“These new loan changes are designed to make it easier for a borrower to qualify for a USDA loan,” Hadder says.

Because certain parts of the application process will be waived or relaxed, she says, “borrowers will hopefully have a better chance of getting approved.”

USDA loans aren’t just for first-time buyers

Another misconception about USDA loans, Ronne says, is that they’re just for first-time home buyers.

“USDA only allows a borrower to own one property at a time, so using the USDA loan program allows for additional purchases in the future, as long as the current home is sold, or will be sold prior to closing on the new one,” he says.

As long as buyers continue to qualify, they can use the USDA program as many times as they want, Chambers says.

USDA loans have great interest rates

Mortgage interest rates for traditional loans have dropped to record lows in recent months, and now hover around 3%. The rates for USDA loans, however, are even lower.

As of Sept. 1, interest rates for Single Family Housing Direct Home Loans are 2.5% for low- and very low-income borrowers.

“The rates on USDA loans are often very competitive, and the fees are relatively low,” Chambers says. “In my community, consumers often find USDA loans to be their go-to loan of choice.”

USDA loans carry few added costs

In addition to low interest rates, USDA loans offer families the opportunity to own a home with few out-of-pocket expenses, like closing costs.

In addition, certain USDA loans offer 100% financing with no down payment, welcome news in today’s uncertain economy.

“Now, more than ever, because of the potential instability in the workforce over COVID-19 and possible future furloughs, layoffs, and cutbacks, having money in the bank to fall back on in case of emergencies has never been more important,” Ronne says.

“Personally, as a mortgage broker, I never want to see a buyer exhaust their savings for a down payment when they may not have to, especially a first-time home buyer,” he says.

More investment in rural communities benefits homeowners

The USDA loan programs can also give rural homeowners a boost indirectly. The agency recently announced new initiatives to increase private investment in rural communities across the country, Hadder says.

This includes changes to four of its business loan programs to standardize the requirements for loan processing, credit review, loan service, and loss claims.

These measures could help rural homeowners. New investment could add new jobs to an area, create better schools, and boost local economies.

This could increase property values and attract new residents to the area—all good news for local homeowners.

The post Moving to the Country? This Overlooked Loan Makes It So Easy appeared first on Real Estate News & Insights | realtor.com®.

How to Buy a House for $10,000 Upfront (or Less!)

October 27, 2018

Pssst … wanna know how to buy a house for just $10,000 upfront, max? No, this isn’t a scam, or a ploy to lure you into purchasing some rickety shack in the middle of nowhere. We’re talking about a nice house in a nice neighborhood—for no more than a hundred Benjamins.

We get why you’re skeptical, given the high price of homes today. According to realtor.com data, America’s median home price rose 7% last year to $295,000. And since many assume a 20% down payment is required to buy a home, that would amount to you coughing up $59,000 before you ever move in! No wonder many of us expect to spend years scrimping and saving to be able to make our home-buying dreams come true.

But here’s a reality check: The upfront costs of buying a home have a lot more wiggle room than you might think.

It largely comes down to trimming two variables: your down payment and closing costs. Here’s the scoop on how to whittle these down to size so all you need is $10,000—or even less—to buy a home of your own.

How to buy a home for $10,000: Tips to trim your down payment

Here’s the secret, in a nutshell: Yes, a 20% down payment is traditionally recommended for conventional loans since it allows you to avoid paying an extra monthly fee called private mortgage insurance (PMI). But that doesn’t mean 20% is necessary.

As such, the first key to buying a home for $10,000 or less is to take out a mortgage that requires little money down, or no down payment at all. There are four options available.

Veterans Affairs loans

If you or your spouse serve or served in the military, you may qualify for a Veterans Affairs (VA) loan. Under this program, the VA guarantees the loan, reducing the risk to the lender. You can finance up to 100% of the house’s cost, so you won’t have to come up with any money for a down payment. Just keep in mind that there are minimum requirements for your income and credit score that vary by lender, so it’s a good idea to shop around for a VA loan to ensure you get the best deal.

There are some fees associated with VA loans, but they can be rolled into the total loan amount that you make payments toward monthly.

According to Jennifer Beeston, vice president of mortgage lending with Rate.com, there are many myths about VA loans that cause people to avoid them.

“Many veterans do not use their VA loans because they hear they are too difficult,” she said. “But honestly, VA loans are very easy and offer a tremendous benefit to the borrower.”

USDA loans

The U.S. Department of Agriculture offers loans to Americans with low to moderate incomes who want to buy a home in a rural area. Like with VA loans, you can borrow up to 100% of the home’s cost, eliminating the need for a down payment. USDA loans do have some fees, but you can roll them into the mortgage.

“USDA loans are fantastic loans that many people do not know about, but should,” Beeston says.

You’ll need to pay ongoing fees for mortgage insurance, he notes, but it’s less than an FHA or conventional mortgage.

FHA loans

If you don’t qualify for VA or USDA loans, another option to consider is a Federal Housing Administration (FHA) loan. With an FHA loan, you still have to come up with a down payment, but it’s only 3.5% of the home’s price.

For the median $295,000 home, that would mean a down payment of $10,325. On a $150,000 home, you’d only have to put down $5,250. Depending on where you live, that could be enough to buy an excellent house in a great area.

The one downside? Because you’re making a small down payment, you will need to pay mortgage insurance (PMI). But you can roll that cost into your total mortgage.

Credit union loans

Some credit unions offer mortgages that require only a small down payment, or no payment at all. It’s wise to check out local credit unions in your area to see what kind of home loans they can offer you.

How to lower your home closing costs

Even if you get a home loan that covers 100% of the home’s cost, you typically need to come up with thousands of dollars to cover closing costs. Those are the fees paid to third parties who facilitate the sale of a home. They include the loan origination fee, credit report fee, title search fee, and more.

While closing costs vary widely, they typically total 2% to 7% of the home’s purchase price. So on a $295,000 home, your closing costs would amount to about $5,900 to $20,650.

However, that doesn’t necessarily mean you have to raise that money yourself. There are two other ways to cover closing costs.

Ask the seller to cover it

One of the best ways to pay for closing costs is to negotiate with the home’s seller to cover some or all of the costs. Depending on the housing market in your area, sellers may be anxious to close a deal quickly and will be more motivated to pay for your closing costs just to get the sale over with. If you show a willingness to close quickly, you will have more bargaining power.

“If you have zero money saved, I have seen Realtors ask the seller to cover 3% of closing costs,” said Beeston. “If the house is under $150,000, you may need to ask for more than 3%, but that’s something the Realtor can negotiate.”

Look for closing-cost assistance programs

A number of states offer first-time home buyer programs and closing-cost assistance grants. In return for a commitment of living in your new home for at least a few years, you can get a grant to help with closing costs. To find programs near you, check out your state housing authority.

Bottom line? When it comes to buying a home, we typically expect to spend years scraping up enough money to cover a down payment and closing costs—but that might not be necessary. There are plenty of ways to downsize not only your down payment, but those pesky closing costs to put homeownership within reach for as little as $10,000, or even less.

Want more advice on buying a home? Check out our first-time home buying guide for more, or talk to a lender to learn how big a mortgage you can afford.

The post How to Buy a House for $10,000 Upfront (or Less!) appeared first on Real Estate News & Insights | realtor.com®.