A USDA 100% Loan, which is also called a Rural Development Loan, is a government-insured purchase loan that allows prospective home buyers to purchase a home without the need of a down payment or monies for closing costs. There is also no maximum borrowing limit or need for mortgage insurance (PMI). While the US Department of Agriculture does not provide the funding for the USDA 100% Loan, it does guarantee this loan allowing for low fixed interest rates. This USDA 100% Loan is offered primarily in rural areas to qualified buyers, but small cities of up to 25,000 may also be eligible. Eligibility is dependent upon the geographic location of the home and on the buyer’s credit and ability to repay the Rural Development Loan. For individuals who do qualify for the Rural Development Loan, there are numerous benefits that can be immediately seen.
The first and probably most prevalent benefit received from the 100% USDA Loans is that personal cash is freed up each month. Individuals are able to use their money for the needs and maintenance of their house and property rather than closing costs and PMI. Money for home repairs can also be included in the Rural Development Loan. This can be especially beneficial in the case of purchasing a ‘fixer upper’ where buyers now have access to enough funding to immediately spend on home improvements. By adding value to the home, it increases the re-sale value and allows the homeowner to build equity faster.
Closing costs can be an unexpectedly high expense. With the USDA 100% Loan, buyers can use gifted funds for closing costs with no restricting limit. If buyers prefer to not make a down payment or pay closing costs upfront, these costs can be rolled into the balance of the Rural Development Loan and paid over time at a low interest rate.
Since a down payment is not necessary, the 100% USDA Loans also positions qualified buyers to upgrade to a more expensive home more quickly. In general, the 30-year fixed rate Rural Development Loans have no pre-payment penalty which gives the home owner the power to be flexible in planning for his or her family’s future. The buying and selling of properties lead to a positive effect on the housing market and the economy.
If you have questions or the USDA 100% Loan is of interest to you, please call us to discuss specific eligibility requirements for applicants. We would be pleased to help you plan for a home for your family in the way that best serves your needs.