Get Your Buyer Into a Home with No Money Down
After the mortgage crisis in 2008 and 2009, lenders have become much more cautious, and it's a lot harder for a buyer to get financing, especially with lower incomes or little money for a down payment. There is one program, however, that is wonderful for those in rural areas, as classified by the USDA (U.S. Department of Agriculture).
The word "rural" can be misleading. In the provided image, the orange areas, those small areas around major urban areas, are where you CAN'T get one of these loans. Everywhere else on the map is considered rural for getting one of these guaranteed or direct loans.
Their rural home loan guarantee program has upper income caps, so check with a mortgage resource to see what they are in your area. There are also some charts on the USDA site here. I just closed a loan for a teacher on a $218,000 purchase, and she got in with no down payment and even got her $500 earnest money deposit back at closing. Here's what the USDA.gov has to say about the program:
What the Program Does
Also known as the Section 502 Direct Loan Program, this program assists low- and very-low-income applicants obtain decent, safe and sanitary housing in eligible rural areas by providing payment assistance to increase an applicant’s repayment ability. Payment assistance is a type of subsidy that reduces the mortgage payment for a short time. The amount of assistance is determined by the adjusted family income.
Who Can Apply for the Program
A number of factors are considered when determining an applicant’s eligibility for Single Family Direct Home Loans. At a minimum, applicants interested in obtaining a direct loan must have an adjusted income that is at or below the applicable low-income limit for the area where they wish to buy a house and they must demonstrate a willingness and ability to repay debt. Applicants must:
- Be without decent, safe and sanitary housing
- Be unable to obtain a loan from other resources on terms and conditions that can reasonably be expected to meet
- Agree to occupy the property as your primary residence
- Have the legal capacity to incur a loan obligation
- Meet citizenship or eligible noncitizen requirements
- Not be suspended or debarred from participation in federal programs
Properties financed with direct loan funds must:
- Generally be 2,000 square feet or less
- Not have market value in excess of the applicable area loan limit
- Not have in-ground swimming pools
- Not be designed for income producing activities
Borrowers are required to repay all or a portion of the payment subsidy received over the life of the loan when the title to the property transfers or the borrower is no longer living in the dwelling. Applicants must meet income eligibility for a direct loan. Please select your state from the drop-down menu above.
What we did was to negotiate in the purchase that the seller would pay 3% of the buyer's closing costs. With the 102% financing and a good appraisal, of course, she got the entire purchase financed, and at a great rate, only 1/8 percent over the best-quoted 30-year rate at the time.
Even better, she only put down a $500 earnest money deposit and she got that back at closing! She's still in that house today, nine years later, and she loves it.
Sometimes the difference between a goose egg and a commission is just finding a way for your buyer to get what they want with what they have to spend. Check out the USDA rural loan program for your buyers who qualify.
If you want to be a hero for a buyer who qualifies, show them this program! You'll be a hero and they'll be sending you referrals for life.