What is a USDA Loan?

A USDA home loan is a zero down payment mortgage for home buyers in eligible towns and rural areas. Because USDA loans allow for a $0 down payment, they can be a great tool to unlock homeownership for qualified borrowers. Also, upon qualification, if combined with the NJHMFA Grant, a first-time buyer (defined as not owning a home in the last three years) can also receive up to $15,000 to cover ALL closing costs, allowing someone to buy a home with potentially as little as $600 out of pocket (cost of a home inspection)!

No Down Payment

• There are many advantages to a USDA loan, but the most well-known is the ability to obtain 100% financing without having to spend years saving for a down payment.

Competitive Interest Rates

• Due to the USDA guarantee, lenders are able to offer some of the lowest interest rates on the market. While actual rates may vary by lender, you should know that your credit standings and current market conditions play a vital role in your mortgage rate.
• Most lenders look for a credit score of at least 640, however a better score will help you qualify for potentially lower interest rates.

Low Monthly Mortgage Insurance

• With a conventional loan, if you aren’t able to put down at least 20%, lenders require you to pay private mortgage insurance (PMI). FHA loans also have high annual mortgage insurance fees. Unlike these other programs, USDA loans don’t require PMI. Instead, the USDA uses two fees: an upfront guarantee fee that is financed into the loan, and an annual fee, which gets lumped into your monthly mortgage payment. The upfront fee is one percent of the total financed amount while the annual fee is 0.35% of the loan’s current balance.

Property Eligibility (You don’t need a cow!)

• The USDA issues maps of the country to determine what areas are approved for USDA loans. Believe it or not, many areas are eligible that you would not expect! In other words, you don’t have to buy a working farm or a petting zoo in order to obtain a USDA loan. Your loan officer can help you determine if your potential property is eligible.

USDA loans are a great option to get into homeownership. Combined with the NJHMFA’s first-time homebuyer program, you could possibly have no down payment and virtually no closing costs.