May 16, 2021

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The $0 down payment mortgage you might be overlooking

Whether looking for more space or cheaper prices, many pandemic home buyers who hadn’t yet broken off their daily commute were looking for accommodation far outside of Boston.


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So far out of town that they may be eligible for a USDA loan, a lesser-known mortgage product backed by the U.S. Department of Agriculture. Nothing to do with agriculture, USDA lending offers enticing perks for low- and middle-income home buyers – namely, the ability to get a home loan for a primary residence with no down payment.

“USDA is a wonderful option for rural borrowers, largely because it offers 100 percent funding,” said Julienne Joseph, associate director of government housing programs Mortgage Bankers Association. “So there is no minimum deposit required for rural borrowers.”

The main disadvantage of a USDA loan is that unlike a Bulk housing or Federal Housing Administration, FHA, Mortgage, there are geographic restrictions: the loans are designed to encourage home ownership specifically in rural areas.

But you don’t have to venture too far from Boston to reach USDA land. Suitable areas include many pleasantly pastoral suburbs and coastal communities that are very closely connected to the greater Boston area, such as Sudbury and Sherborn, Ipswich and Essex, Easton and Bridgewater, and much of Cape Cod USDA’s online authorization card. Some properties in Hopkinton – known to be a 26 miles walk from downtown Boston – are also eligible.

There are two main types of USDA single family mortgage programs. USDA direct loans are offered by the agency itself to low and very low income borrowers and can offer longer loan terms (up to 33 or even 38 years), payment assistance, and subsidized interest rates between 1 percent and 2.5 percent. However, USDA direct loans are also subject to most of the restrictions: They cannot be used to buy a home with a built-in swimming pool, for example.

The more accessible USDA mortgage is the guaranteed loan. These mortgages are issued by private lenders but have the express endorsement of the federal government and are also available moderate income Households. As of 2020, borrowers from the Boston area could earn up to $ 154,900 per year or north of $ 200,000 for families of five or more and still qualify for a USDA-guaranteed loan. In most other areas of the state, income limits ranged from $ 110,850 to $ 112,850 and between $ 146,300 and $ 148,950 for a large family.

Individual lenders may have their own credit requirements or underwriting criteria, but USDA loans offer some flexibility when it comes to borrowing. Borrowers with a credit score over 640 can usually get an optimized permit;; Those with lower scores but otherwise strong applications may also be able to get approval if they explain their situation and provide alternative sources of credit, such as credit rating. B. a history of on-time rental payments.

“When a mortgage can’t be automated through digital underwriting and can’t get proper approval that way, most programs allow for some level of manual underwriting that allows for the human touch for an actual underwriter to consider every explanation that the borrower might have can provide, ”said Joseph.

USDA loan interest rates tend to be pretty competitive compared to traditional mortgages, Joseph said. “All interest rates are subject to investors and can vary from lender to lender,” said Joseph. “But usually USDA rates are competitive with all other programs.”

There are other disadvantages, however. While most lenders require borrowers to pay private mortgage insurance if they can’t make a 20 percent down payment, USDA borrowers don’t have to pay a PMI even if they don’t make a down payment at all – which is a nice plus. To keep the program tax-stable, the USDA charges lenders two fees, which are usually passed on to borrowers.

The first is an upfront “guarantee fee” which is currently 1 percent of the total loan amount. according to bank ratethat can be rolled into the mortgage. A separate annual fee, currently 0.35 percent of the remaining balance per year, is paid monthly.

Federal loan programs also still have a reputation for being sluggish at times, but Joseph said the agency has been working to reduce turnaround times. “I know the USDA has taken some significant steps over the past few years to ensure that their processing is as efficient as possible and that there are no delays in turnaround times to close,” said Joseph.

After all, USDA loans are a pretty niche product – only 475 were issued nationwide in the past fiscal year, according to a USDA spokesman. So after that Checking the eligibility of a property at usda.govIf you want to find an approved lender who has some experience with the process.

Jon Gorey blogs about houses in Submit comments to [email protected]. Follow him on Twitter at @ Jongorey. Subscribe to our free real estate newsletter at

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