0% Down Loan Options: VA and USDA
You may have heard that a 0% down loan is no longer available. However, this is not true. There are two 0% down loan options: VA loans and USDA loans.
0% Down Loan: VA Loan
Created in 1944, the VA loan helps military veterans and their families become home owners. Many military families have trouble qualifying for conventional loans because of the tough requirements for credit and down payments. However, with a VA loan, they can often become homeowners.
Here are some points about VA loans that may be of interest.
- It is a 0% down loan, however, there is a 2.15% of the purchase price funding fee. This fee is 3.3% if you’ve used a VA loan in the past.
- VA loans do not require private mortgage insurance (PMI)
- Interest rates are significantly better
- Qualification for a VA loan is easier
- Your Basic Allowance for Housing (BAH) is considered as an income source
- Closing costs are often reduced
Qualifying for a VA Loan
You may be wondering why everyone doesn’t jump at the chance to get a 0% down loan with all these benefits. The truth is that not everyone can qualify for a VA loan. The VA Loan is specifically for those who are or have been in the military. To be considered for this 0% down loan, you must have:
- 90 consecutive days of active service during wartime, OR
- 181 days of active service during peacetime, OR
- More than 6 years of service in the National Guard or Reserves, OR
- Be the spouse of a service member who has died in the line of duty or as a result of a service-related disability.
In addition to military qualifications, you will also have some financial qualifications to consider. Although the VA doesn’t set an income level or debt ratio like a conventional loan, they do need you to have sufficient income that can cover your new mortgage loan payment.
To determine this, the VA looks at something they call residual income. This is often known as discretionary income and is the money you have left over at the end of the month. There are many monthly items, however, that are not considered when determining discretionary income, such as utilities and groceries.
To determine all the qualifications needed to be approved for a VA loan, check out the VA website.
0% Down Loan: USDA Loan
The USDA’s Rural Housing Service offers a 0% down loan known as the Section 502 Direct Loan Program. This program helps lower income home buyers find a home in specific rural areas throughout the United States.
To qualify for this 0% down loan, you must have the following:
- An adjusted income at or below the area’s low-income limit
- Not living in adequate housing
- Be unqualified to get a more traditional loan
- Use the home for your primary residence
- Be a citizen of the United States
Additionally, only certain homes qualify for the USDA loan program. The house must:
- Be no more than 1,800 square feet
- Have a market value below the USDA loan limit for the area
- Not have a swimming pool
- Not be used as a rental property
- Be in a USDA eligible area, which means the population is below 35,000
If you’d like help finding a home that qualifies for a 0% down loan or to discuss other loan options, give us a call. We’d be happy to locate USDA approved houses or direct you to recommended mortgage brokers in the area.