Have you looked into USDA loans when buying a house in New Jersey? For many, if not the majority, of first-time home buyers, the biggest hurdle to overcome is coming up with the down payment. Although many kinds of loans such as FHA loans require a much smaller down payment than the traditional 20%, it still remains an insurmountable obstacle. But there is, in fact, a no down payment option though not many people know about it – and that is a USDA loan. So here’s what New Jersey home buyers need to know about USDA loans.
Overview of USDA Loans
Also known as rural development loans, the United States Department of Agriculture (USDA) loans aren’t only for farmers and ranchers as the name seems to imply. This loan program was created to help residents of suburban and rural areas become homeowners by offering low-interest rates, no PMI, and zero down payment.
These loans are a less expensive option than conventional loans or even FHA loans and are available to both first-time homebuyers in New Jersey and repeat home buyers. But even with all the obvious benefits, fewer than 5% of all mortgages are USDA loans.
The three USDA home loan programs are:
- Direct loans – These USDA-issued mortgages are for low and very low-income buyers, have income thresholds that vary by region, and can have interest rates as low as 1%.
- Loan guarantees – With this type of USDA loan, the mortgage is issued by a private lender and is then guaranteed by the USDA, much the same as an FHA loan. Interest rates are low, but with no down payment private mortgage insurance (PMI) will be required.
- Home improvement loans and grants – These USDA loans (or awards in the case of grants) are designed to help homeowners repair or improve their homes, with combined packages of up to $27,500.
To be eligible for USDA loans, New Jersey home buyers, as well as the properties themselves, must meet certain requirements.
Homebuyers have to meet both the lender’s and the USDA’s income and credit requirements. Typically, the required credit score is a minimum of 640, but lower scores may still qualify under certain conditions.
The home to be purchase must be the buyer’s primary residence. Also, it has to be located in what the USDA deems a rural area. But the definition of “rural area” is pretty broad, including homes in small towns and suburbs and even in some metropolitan areas.
Getting approved for a USDA loan is often easier than people realize. The first step is meeting the income requirement, which is typically that the applicant makes less than 115% of the median income in the area. This means, of course, that the annual income requirement will vary by region. So as a New Jersey home buyer, you should check with the lender about income.
And, as we mentioned, USDA loans don’t require what is typically considered good credit. A minimum score of 640 will allow you to qualify. Also, you must buy in a USDA-approved area. Again, check with the nearest USDA lender to make sure of this.
The whole process is fairly easy. USDA lenders process all the paperwork and then work directly with the USDA to help you get your loan approval.
How It Works for New Jersey Home Buyers
Also, the USDA issues mortgages on the basis of need, with applicants demonstrating the greatest need being prioritized. The criteria used to assess an applicant’s need and suitability include:
- Lack of “decent, safe and sanitary housing”
- Inability to secure a traditional mortgage or from other sources
- An adjusted gross income at or below the area’s low-income limit
Keep in mind, too, that direct USDA loans are usually issued for homes at or less than 2,000 square feet, and the market value has to be below the loan limit (which, again, depends on the area). And occupation isn’t a consideration for qualification – that is, you don’t have to be engaged in agriculture. Eligibility is based on income and location.
The Local Agent Advantage
Finally, because eligibility for USDA is largely location-dependent, it pays to have a good local real estate agent in your corner. A local agent can save you a ton of time and effort by knowing which homes will meet the USDA’s location requirements. Contact us at 855-966-DEAL to find out more about buying New Jersey homes with zero-down USDA loans.