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The USDA Offers Zero Down Mortgages

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No money down mortgages, or zero down mortgages, are programs that allow a borrower to purchase a home without making a down payment. Normally, these are extended to borrowers with good credit ratings, but some programs exist that permit those with less than perfect credit to purchase a home.

Shopping for zero down mortgages

Although there is no immediate cash outlay, the no money down mortgage may not be all beer and skittles. There is usually a tradeoff. These loans can have a much higher interest rate than a conventional loan, and the provisions in the contract may not be favorable. The borrower should consult with several lenders to find the most attractive package available. If you qualify for a VA loan, the Veteran’s administration will guide you to approved lenders.

Little known USDA program

The most common zero down mortgages are offered through the Federal Housing Administration and the Veterans Administration. But there is another, highly accessible option that very few lenders or mortgage brokers know of: The USDA offers zero down mortgages to buyers who are looking to purchase homes in rural areas. What qualifies as a rural area is fairly broad, so consult first with the USDA about the eligibility of your intended purchase. For qualifying buyers, this loan offers:

  • No down payment
  • Flexible underwriting guidelines
  • Less restrictive credit requirements
  • No private mortgage insurance requirement
  • Financing closing costs into to loan amount
  • Excellent interest rates and loan terms

In brief, to qualify for this USDA mortgage, the following must apply:

  • Be in open country, or areas where the population is less than 25,000
  • Must be the primary residence only
  • The combined income of the borrower cannot surpass the moderate income levels for the area in which the home is located
  • The borrower must be a U.S. citizen, qualified alien, or legally admitted for permanent residence

For complete eligibility requirements, have your mortgage broker or lender research whether or not the property meets eligibility guidelines for this loan. You can also find information at the USDA website.

If you do not meet the requirements for obtaining zero down mortgages, a low down payment mortgage may be the next best choice. The FHA is the primary source for these loans. You can research the requirements or consult with a representative from your lending institution for specific details.

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