Tennessee home buyers still have a great opportunity to purchase a home with NO down payment

Did you know that USDA (United States Department of Agriculture) and Rural Housing still offer 100% home loans through approved mortgage lenders? In the past, many people think of USDA as loans only for farmers – to be used only to purchase properties in country agricultural areas.

That not the case today with the Tennessee USDA Rural Development home loan. In fact, many properties are still eligible just outside of Tennessee’s major metropolitan cities like Nashville, Memphis, Knoxville, Chattanooga, etc. A USDA loan provides low-cost government-insured home mortgage loans that fit a variety of home buyers. The program is especially great for Tennessee first time home buyers that have little to no cash savings for a large down payment. USDA is one of the only program today that allows 100% home financing in TN.

First let’s discuss the different USDA mortgage types: Currently, there are two kinds of USDA loan programs available for single-family households:

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USDA 502 Guaranteed Rural Housing Loans:

USDA 502 Guaranteed Loans are the most common type of USDA loan and allow for higher income limits and 100% financing for home purchases. USDA Guaranteed Loan applicants may have an income of up to 115% of the median household income for the area. Income limits in Tennessee start at about $90,300 per year for a family of 1-4.

Households size and county also determines the allowed income limits, please contact us below to discuss the income limits in your county. Most home buyers will fall under the moderate-income 502 Guarantee program – this program is offered solely by USDA approved lenders and banks.

All USDA guaranteed loans carry 30-year terms and are set at a fixed rate, no adjustable-rate terms.

USDA Direct Rural Housing Loans:

USDA Direct Housing Loans are only offered directly by the USDA – unlike the 502 Guaranteed program above. These loans are less common than USDA Loan Guarantee Program loans and are only available for low and very low-income households to obtain homeownership, as defined by the USDA income eligibility requirements. Very low income is defined as below 50 percent of the area median income; low income is between 50 and 80 percent of AMI; moderate income is 80 to 100 percent of AMI. Click here to see area income limits for this program.

2020 USDA Loan Requirements:

Currently a min 620 credit score is required by most lenders.
The home being purchased must be located in a USDA approved area. See the map here.
Household income must be below the income limit per county
USDA permits the home seller to pay buyer closing costs – up to 6%
USDA home loans do not have a set loan amount limit. The borrower qualifies based on their debt to income ratios. The current debt to income ratio limits is 29/42. This can be exceeded in some cases with strong compensating factors like great credit, great job history, assets, etc.

Like most loans that require less than 20% down payment, the USDA mortgage program will require an upfront guarantee fee and mortgage insurance or PMI. Effective October 1, 2019 USDA mortgage insurance rates (PMI) are:

For purchases and refinance programs – 1.0% upfront guarantee fee paid at closing, based on the loan size. The guarantee fee is allowed to roll into the borrower’s loan amount. So you can finance up to 101%
For all purchase and refinance loans, a 0.35% annual fee (monthly PMI) is based on the remaining principal balance. This the monthly premium added to the buyer’s payment each month (like taxes and home insurance) All USDA loans include taxes, home insurance and mortgage insurance.

Below we listed a few interesting facts about the USDA RD home:

USDA 100% Home Loan Financing is a 30-year mortgage term.
USDA Rural Housing loans have very competitive 30 year fixed interest rates.
USDA loans do not have pre-payment penalties – move or sell your home anytime.
USDA 100% Home Loan Financing does not require a down payment
The program does require monthly mortgage insurance, but the monthly amount is nearly half the amount of comparable FHA home loan.
Already owned a home in the past? That’s ok, you aren’t required to be a first time home owner.
There is no special first-time buyer class needed to apply. Contact us below and have your USDA loan application complete in no time!
USDA offers great refinance options for home buyers should interest rates decrease in the future.