Are you looking to buy a home just outside the metro area? Depending on where you are looking, a USDA home loan may be a terrific opportunity for you. They require zero down and have low mortgage insurance.
USDA loans were created to help those in rural areas purchase homes. They have many benefits – the most important one being zero down. The only other true zero down loan is a VA loan. The mortgage insurance required is less than FHA and the rates are typically comparable to FHA, lower than conventional interest rates.
To find out if the area you are looking to buy in is in an eligible area, you can go to the USDA website and put in an address. It will tell you if the property is eligible. The link to the property locater is https://eligibility.sc.egov.usda.gov. There are many areas that do qualify, in Minneapolis St Paul area you can use the program in Elko New Market, Belle Plaine, Monticello, Zimmerman and Stacy.
There are also income limits for the program, but they are generous – you need to be at 115% of the area median income. There is also an income tool on the website to use to see if you qualify for the program.
Underwriting tends to be similar to FHA. Debt to income ratios are usually about 29% of your gross income for housing, 41% for total monthly debt including your housing. There are situations where you can go higher on ratios – it will depend on your credit, reserves after closing and overall file.
The mortgage insurance changed in October of 2016. Now there is an upfront guarantee fee of 1% and a monthly fee of .35%. The upfront fee can be added to your mortgage. FHA's mortgage insurance is an upfront fee of 1.75% and monthly is .85%, so if you are looking in an area that qualifies, a USDA mortgage can save you a lot of money.
If you aren't sure if you would qualify, talk to your loan officer and see if this is an option! It can be a great way to buy a home sooner than you expected!