2021 USDA Loan Requirements For 0% Down!

so you most likely are feeling the pressure of trying to save for a down payment as homes continue to increase in price it can be difficult to save money for a down payment because the higher the homes rise in cost the more down payment you need so this video we're going to talk about a zero percent down payment program called usda and it's actually one of the four main types of loans and this is a really great program it's actually backed by the government insured by the government this means the lenders can offer you really great interest rates a really great program and zero percent down without all the strings attached that traditional down payment assistance programs have so let's go ahead and dive into this so there are two main types of usda loans there's direct and guaranteed direct is primarily for lower income households okay and guaranteed is one that's going to be offered by most banks credit unions and brokers so in this video we're specifically going to be talking about the guaranteed program all right now these loans are insured by usda and they're primarily for what they call rural areas however this isn't as strict as you might think it is okay don't just think of farmland because usda is all based off of uh the population size of a specific city okay so we'll talk about a map here in just a bit also you don't have to be a first-time buyer with usda which is really fantastic you don't have to be a first-time buyer take advantage of this fantastic zero percent down program there also is a one-time close loan for construction so you could actually do a new build with the usda these are a little bit more niche we're not really going to cover that in this video here but it does exist with usda and then also there's a an applicant orientation guide from usda in the description that's going to be in english and spanish it's given my usda might be a helpful guide to to see a little bit more about the program there now before we dive into all of the good details of usda i want to quickly talk about the funding shortage problem that usda is having because they even say here at the beginning of each fiscal year funding for the guaranteed loan program is not available for a short period of time approximately two weeks most lenders probably won't lend with usda until those funds are available okay and then here are just some things that some of you have said about usda loan so joel said we have a usc alone and love it we found a house on 3.3 acres right outside the city we work it's a great option if you're eligible and find the right zip code jana said i just used the usda loan it went pretty fast and they required a lot out of me it only cost me around 800 after closing costs skywalker said i went with usda on a new house build 2.7 interest no down payment my builder paid the closing cost and they cut me a check at closing the only thing that got put into the loan was the usda program uh which was 1 000 and we'll talk about that here in just a little bit and then also i have a usc loan and i bought my first house it was stressful due to the waiting period but it was so worth it my property appraised for higher than the loan i literally walked in signed papers and then moved into the house with no money exchanged outside my insurance so you can see usda is a really popular program it's a fantastic option and frankly just most people don't know about it and a lot of lenders a lot of loan officers are not familiar with this program and how beneficial it can be all right so i've done a ton of research on usd i've closed several usda loans as a broker and i honestly think this is going to be the most in-depth tutorial or walk-through overview of usda so you can scroll along the bottom to find different sections if you want to dive into just specific aspects of usda okay so first let's talk about the credit requirements there is a minimum of 500 as a median credit score now if you do have a credit score that is 500 on the lower side this is going to limit your debt to income ratio which means it's going to limit how much you can afford the maximum purchase price you can get so the lower the credit score the lower you can get approved for as a purchase price and then also a lower credit score is most likely going to require reserves and this is extra money left over in your bank account after you close normally one to two months worth of housing payment left over in your bank account after you close and pay your closing costs now ideally you want to have a 640 credit score what this allows you to do is take advantage of gus and this is so gus this is the usda automated underwriting system and this is what allows you to tap into higher debt to income ratios which means you can afford more house you can get approved for a higher purchase price i'm just going to make that process easier you're going to get lower rates if you have a 640 or higher now be very careful of lenders who don't know the true guidelines because again not a ton of people are familiar with usda and so you'll probably run into loan officers who say yeah the minimum for us state is 640 or the minimum for usda is 620. and that's just completely not true 640 is the minimum for the automated underwrite but you can always do a manual underwrite below a 640. okay it just requires a little bit more in depth of a process if you're there search around and find a loan officer who's going to help you with that instead of just cutting you off at their company guidelines all right so credit events if you've had some some uh some maybe credit history in the past that wasn't so great here are the waiting times for usda so chapter 7 bankruptcy two years from discharge chapter 13 is 12 months on time payments and you also need permission from the court foreclosure short sale deal in lieu three years of a waiting period and no more than uh 12 months with no more than one 30 day late for mortgage late so if you have a mortgage right now you can have one 30 day late and still get approved for a usda loan if you have more than that you won't be able to get approved with a usda loan now most people going into the usda program tend to be renters so it's not going to be an issue for you but if you have a home currently with a mortgage you make sure you want to make sure that you have been paying that on time if you're looking to qualify for usda also rates rates on usda are fantastic they're comparable to fha and va these are both again backed by the government okay and that allows lenders to push out lower interest rates brokers tend to have better rates on usda programs compared to banks and the reason why is there's a lot of regulations around brokers where they can take you know any cost savings they get because the risk is lower because it's government-backed has to be given and passed on to you as a buyer okay banks actually can collect that difference and so sometimes they tend to have uh comparable rates to conventional where fha va and usda loans tend to have lower rates than conventional loans so for instance i took a look at an example for a 300 000 property conventional would be 2.75 interest usda would be 2.375 interest now there is mortgage insurance so it's worth talking about because it's not always just about the rate so usda has a monthly mortgage insurance and an upfront mortgage insurance so two types here monthly it's 0.35 of the loan amount so on a 300 000 loan that's 87.50 per month that's on top of what you're already paying in principal interest taxes and homeowners insurance okay there's also a one percent funding fee all right so they're gonna take one percent of your loan amount add it into the total loan amount so if you're doing an initial let's say a three hundred thousand dollar purchase zero percent down to our loan is three hundred thousand dollars your funding fee is an additional three thousand so your total loan amount is three hundred and three thousand dollars all right and mortgage insurance is going to stay on for the entire life of the loan or until you refinance into another type of loan so you could refinance at a conventional to take that mortgage insurance off but you'll never be able to remove usda mortgage insurance so something to keep in mind but this is a lot lower than most other loan programs with their mortgage insurance now property requirements this is where usd starts to get a little tricky okay so it's rural now what does rural mean it's not all uh tractors and farmland okay um what most people like usd actually has a map and what you can do is go look through that and find areas around you that are eligible for usda and it's probably a lot more than you think for most people they can actually extend their commute by maybe 15 minutes and be within a usda eligible area because often you can get pretty close to the city you know the city that you might be wanting to look in if it's not eligible extend your commute just a bit to be able to qualify for that zero percent down program now this does have to be a primary residence for at least one year so that means you have to you have to live in the home this cannot be an investment property you have to live in there um you know by yourself or with your family but live in there for at least a year before you decide if you're going to rent it out then you can sell it you know within the period of a year if you want to but if you choose to rent that out in the future you will need to be in there for at least one year now what's kind of confusing about usda is you would assume okay it's rural so you know maybe i could buy some a home with some farmland on it or maybe has some equipment with it you actually can't there's zero income producing land or buildings allowed with usda that means that if there's a working farm you can't get a traditional usda guaranteed loan with it you're going to need an actual specific farm loan for that because now you start getting into you know the property is commercial use not just residential use so watch out for that now let's talk through some example homes because anytime i talk about usda loans people always say like yeah the only thing you can get approved for is a dump okay and that's just simply not true if you're in high cost areas you can go move okay you're allowed to do that so here's an example in florida all right so this home 287 thousand dollars and we can see this is a nice home this is not a dump this is usda eligible zero percent down we have another home this is in florida 290 000 again great home beautiful home uh and zero percent down here and then finally one other that we see here um this is three hundred thousand this is in tip city ohio which is right down the road from me um but this is usda eligible area the nearest city to us is dayton dayton to tip city it's like a 20-minute drive so if you worked downtown you can do a 20-minute drive pretty sure that won't kill you if you need to do zero percent down with your loan now usda is a little strange in that there is no loan limit to how much you can get approved for okay there's there's no ceiling on it actually most loan programs tend to have a limit and usda just doesn't instead what they have is an income limit for your household so this kind of is an indirect way of setting a loan limit because this income limit tends to be around the 80 to 90 000 per year mark for a household and usd is kind of strange because even if somebody's not on a loan if they're 18 years of age or older and they work their income is included in household income so it's a little strange and there's a link in the description where it's going to take you through kind of a quiz to see if you can qualify based on your income and the county that you're in but this is a really strange thing that you have to watch out for with usda because even if you're on the loan by yourself and you make less than the income limit if you have somebody else in the home that you're living with and they work too they can push you over the income limit for your household and you can't qualify and the way that usda actually checks this is they'll ask for uh things like w2s and pay stubs for people who aren't even on the loan to check for this income limit so just be very careful about that the two main things that you need to check for eligibility wise for usda is is the property in a usda eligible area and do we meet the income limit are we under the income limit if so then rest of usda tends to be easy to qualify for relative to other types of loans now let's talk about the appraisal requirements we talked about the property and where the property needs to look like the the bank or the lender is going to do an appraisal to make sure it's up to usda standards all right so what's really cool about usda is that they have a feature that no other loan has and this is a closing cost wrap inside the appraisal so here's how this works if the home appraises for more than the purchase price you can wrap your closing costs into the loan so for example let's say um you're looking to purchase a 250 000 house all right then an appraiser goes out and they appraise the property and they say this is actually worth 255 dollars so what you can do is you can take five thousand dollars and include your and your closing costs up to five thousand dollars into the loan so any closing costs you have you can take care of that put it back into the loan amount no other loan can do this this is a really cool feature that again a lot of people just don't know these things about usc alone so it's helpful for you to know this in case you run into these scenarios and the people you're working with maybe aren't as familiar with the program all right so usda is going to be focused on what they call health and safety all government loan programs tend to use that language health and safety for their appraisals so they're looking at things like structural soundness they want to make sure the property value is protected so you know this home is not in disrepair that's going to prevent it from being sold in the future so it's helpful to think move in ready as you know when you're looking at these homes for usda and it is stricter than conventional because it's government insured it's government-backed so you know the the government tends to want these homes to be a little bit better condition than just conventional loans so some common things that might trip you up in in this appraisal broken glass chipping paints plumbing issues exposed wiring broken hvac rotting wood wet basement or crawl space these are all things that need to be addressed if an appraiser calls these out they're going to require them to be fixed before you close on that loan okay so employment employment can be a tricky thing and this sometimes can be confusing for people but um you're gonna need stable income and employment and this is all subjective there it's there's not exactly solid guidelines around what that means but ideally you want to have a two-year minimum employment history now this doesn't mean it has to be at one job for two years all right but ideally you want to be at the same line of work for the past two years so over the past two years you could have had four different jobs all within the same line of work so maybe you worked at four different hospitals okay or you worked for four different plumbing companies that's perfectly fine you don't need two years at one job in fact usda says there's no minimum for any particular position all the lender is trying to do is see do you have stable income and employment so they need to see your employment over the past two years so gaps greater than 30 days need a letter of explanation this isn't going to stop your loan from going through but if you do have that gap they just need to see why was there that gap in employment in place if you're self-employed you need a minimum of two years in that company and college does count towards your employment history so if you just got out of college let's say you got a nursing degree and you're going into nursing you can absolutely use your college as that two-year residence history or i'm sorry employment history now that's income debt to income is a boring number but it helps us understand what's the maximum we could be approved for now keep in mind just because a bank is would lend you money doesn't mean you have to take it or you should take it often a bank will lend you more money than it's probably comfortable in your budget so keep that in mind we're only talking about what a lender would lend to you not what you should take so here's gus again we talked about that just a bit ago this is if you have a 640 and higher this is the automated underwriting system this is how you're going to be able to get approved for more is if you get your loan underwritten through the software so we have front end and a back end ratio front end is our gross monthly income times the front end ratio is how much our maximum monthly housing payment can be the back end ratio is the same thing but it also includes our monthly debt okay the the payments we make for instance on your minimum credit card payment your student loans your car payment so if we took a 70 000 per year income if we were getting underwritten through gus we could afford 2 32 per month as a housing payment that's how the maximum we could go up to all right and this would actually include with a back-end ratio an additional 700 a month worth of debt so if you had 700 a month worth of debt payments you could still qualify up to a housing payment that's twenty three hundred dollars now again doesn't mean you should i know people in the comments are gonna be freaking out about this it's only what the lender would give you not what you should take okay um ultimately you are in charge of your budget not not the lender they're they're not a financial advisor for you okay now manual so if you have a less than 640 score we can see how much this drops we went from being approved for 2 300 a month to uh just under 1700 per month all right now we can still include the 700 a month in debt but we greatly reduced how much we could purchase all because our credit score was lower so this is why it's important to keep your credit score up that's going to help you qualify for more and do that a lot easier now down payment and closing costs zero percent down is the the main thing about usda this is what attracts most people to usda and this is at all credit score levels so all the way down to a 500 all the way up to an eight whatever you can do zero percent down okay however closing costs are normal just like every other loan you're still going to have your appraisal your title fees uh your taxes your homeowner's insurance those are still going to exist on every single loan program so just because you hear zero percent down doesn't mean you're not bringing anything to the closing table you still might have to do some negotiation to figure out how you're getting those closing costs paid for some people pay for the amount of closing some people have negotiate the seller to give the money some people receive a gift some people wrap the closing costs into the appraised value there's several ways you can do this if you don't want to pay closing costs now there's that one percent funding fee it's added to the total loan amount like we talked about earlier so this is going to be listed on your loan estimate but it's not an upfront fee it's included in your loan amount and it's going to be financed over the life of your loan okay now my word of caution here with zero percent down loans is they're great it's nice to not have to put up a down payment because you can put that money towards savings or paying off debt or you know repairs for the home the issue with zero percent down is it can get you stuck in the home uh for a little bit longer than you might anticipate all right so let's say right now home values are right here we purchased that maybe three hundred thousand dollars okay we did zero percent down so we have a three hundred thousand dollar loan well what happens if property values drop not even if they think what if they just drop um so now our home is maybe worth 290. all right well now we we still have like a close to a 300 000 loan so we're almost immediately underwater in our mortgage now it's not a huge issue if you're gonna be in the property for let's say five to ten years you'll you'll be okay you'll regain that equity back to whether any losses but if you're looking only being in the home for just a couple years you could run into issues where if you need to get out of the home let's say you need a jobless relocation or some financial emergency comes up and you need to sell it then you could be stuck in a position where you have to pay to sell the property so just be very careful if you're doing zero percent down you want your your buying timeline to be a little bit longer okay now seller credits so you can negotiate the seller to pay a portion of your closing costs now keep in mind i didn't say all closing costs because you can't really negotiate in there to say all closing costs loans have a limit of how much you can ask for so in usda this is six percent of the purchase price all right so 100 000 purchase price you can ask for up to six thousand dollars in closing cost credit two hundred thousand dollar purchase price you can ask for up to twelve thousand dollars in closing cost credit now your closing costs ever gonna be that high most of the time no unless you have crazy high taxes or transfer taxes or something like that most of the time your closing costs are not going to be that high but you can ask for up to that amount if you need to okay now here's some special requirements and features usda is a little bit strange and unlike other loans in the sense that it it has what's called a commitment review all right so basically your loan is going to be fully approved twice so it's going to get approved once with your lender everything's packaged it's done you have all your documents in and the lender says you're good to go then what they're going to do is they're going to take your loan documents and send it off to usda usda then has to review it and issue their own approval for it okay now i've never seen it come back where usda says this loan isn't approved most of the time lenders do a good job getting everything they need in that way usda approves it pretty quickly all right but usd is basically doing an audit to see does this meet our standards of loan if so great we'll go ahead and prove it so the bummer about this is it can just take time so in a normal market usda tends to take about two to three days to reveal your loan and give you a final approval then you can close however in a heavy seller's market like we're in right now sometimes this is even taking up to two weeks so you could be fully done with a loan and then it has to be reviewed by usda and it's taking two weeks or maybe more okay so what you can do is you can actually google turn times for your state so how long will it take usda to review so for instance in ohio i can google usda ohio turn times and that will show me how many days it takes for usda to review a loan once it's fully approved by your lender and there's also a pretty cool moratorium built into usda when you get this loan and this is so this is borrowers who continually or continue to personally occupy the property may apply for postponement payments for up to two years if due to a loss in income beyond their control they're temporarily unable to continue making scheduled payments so there's a really great provision in there in the event that something bad happens there's a job loss or a medical issue that comes up where it's going to buy you some time where you're not going to be immediately kicked out of a home or run into all the other issues that can come along with not being able to make that mortgage payment let's talk about seller perception because when we're using loans we're writing offers on homes okay and we have to keep in mind how the seller is perceiving our offers so that we can do our best to win out against other people who are bidding for the same home so usda sellers tend to just see as uncommon to most people usd is just uncommon okay um a lot of people just aren't familiar with the program all right so it might take some extra assurance to the seller to educate them about this this program here and there it's also viewed as slow because of this commitment review right in a seller's market like we're in right now if a commitment review is going to take two weeks a seller probably is not going to like that compared to a conventional offer or an fha offer something where there isn't this extra set of review that needs to be done also appraisals can be a bit of a pain because of the requirements we talked about earlier it's more strict than a conventional loan and the value sticks with the home for four months so if you get an appraisal today with the usda loan and let's say approve appraises for 250 000 and let's say it's short let's say the home was 275 thousand dollars let's say you back away from the property no one else can purchase that usda home or that home with usda and get a new appraisal for in another four months it's going to stick that value is going to stick for four months so that can be a bit of an issue for sellers there now how do we actually apply how do we use this program so it's actually you're not going to go directly through usda there is a usda direct program like we talked about in the beginning which is for low income families but with usda most banks brokers credit unions are going to have usda programs so those are going to be your best bet to find usda guaranteed all right so most lenders offer these programs so ideally you want to get approved first and then look for properties in a usda area using that map that we talked about earlier so if you want to work with a broker two options that you have you can go to find a mortgagebroker.com or dot com certifiedmortgageadvisor.com are both going to be good options for you you can also shop with a credit union a direct lender a bank anyone of your choice that you want for a usda loan now if you want to learn more about the four main types of loan programs over here this playlist is going to help you understand all the programs available to you so you can choose the best one for you and your family

Channel: Win The House You Love

Views: 453,120

Keywords: win the house you love, kyle seagraves

Id: BJUxLw--b38

Length: 26min 15sec (1575 seconds)

Published: Tue Dec 22 2020