If you’re on the hunt for homes in the Triangle area of North Carolina and want to take advantage of affordable financing, you’ll be glad to know that there are USDA homes for sale that offer 0% down payment options. In this article, we’ll explore what USDA home loans are and how you can qualify for them, regardless of your occupation. So, let’s dive in!
What is a USDA Home Loan?
The USDA Home Loan program was established to provide guarantees to lenders and make homeownership accessible to low and moderate-income buyers in designated rural areas. With competitive 30-year mortgage rates and 100% financing, these loans help buyers secure their dream homes without breaking the bank.
Three Types of USDA Home Loans
USDA loans come in three different types to suit the needs of various homebuyers:
1. Direct Loans
Direct USDA loans are funded directly by the USDA, eliminating the need for banks. These loans are designed for low- and very low-income homebuyers who require financial assistance. The loan amount varies, and you can use the USDA Self-Assessment tool as a starting point.
2. Guaranteed Loans
Guaranteed loans are a partnership between local banks and the USDA. With this loan option, a portion of the loan is guaranteed by the USDA, allowing lenders to offer loans to low and moderate-income individuals who may not qualify for conventional loans.
3. Home Improvement Loans
Home improvement loans aim to improve the living conditions of low-income homeowners. While these loans don’t help with purchasing a house, they provide funds for repairs and enhancements. The maximum loan amount for home improvements is $40,000.
Eligibility Requirements for USDA Home Loans
To qualify for a USDA home loan, you need to meet specific eligibility requirements:
- Be a U.S. Citizen, U.S. non-citizen national, or qualified alien
- Meet income and credit requirements
- Demonstrate stable income to afford mortgage, taxes, and insurance
- Have a credit score of at least 640 with an acceptable credit history
- Maintain a debt-to-income ratio below 41 percent
Homes Eligible for USDA Loans
Eligible homes for USDA loans must be located within designated rural areas and serve as owner-occupied private residences. While metropolitan cities like Raleigh, Durham, and Chapel Hill do not meet the “rural area” requirement, there are semi-urban and rural areas nearby that are eligible. USDA loans cover various property types, including new construction, manufactured homes, condos, townhomes, and modular homes.
Limitations, Closing Costs & Interest Rates
USDA loans have some limitations and costs to consider. Homes eligible for USDA loans must meet strict guidelines, and loan amounts are determined on a case-by-case basis by banks. While there is no official upper limit on most USDA Guaranteed loans, some semi-rural areas near Raleigh have USDA-eligible homes priced around $500,000.
Interest rates for USDA loans can be as low as 1% when combined with other payment assistance options. As of February 1, 2023, the interest rate for USDA Direct loans is 4.00% for low-income and very low-income borrowers.
Closing costs typically range from 2% to 6% of the home’s purchase price. However, USDA allows seller concessions up to 6% of the sales price. In some cases, lenders may roll over closing costs into the overall loan, eliminating the need for upfront payment.
Benefits of a USDA Home Loan
USDA home loans offer several benefits that make them an attractive option for homebuyers:
- Low or no down payment requirements
- Lower interest rates compared to conventional loans
- Reduced mortgage insurance
- More lenient credit score requirements
- Lower closing costs and fees
Apart from these benefits, there are a few lesser-known advantages of USDA home loans:
- Repair and renovation loans can include grants of up to $10,000 for borrowers aged 62 and older, with incomes below 50% of the area median income. These loans are particularly beneficial for senior borrowers.
- While many believe USDA loans are only for remote areas and farmland, they can be utilized in various locations. With the USDA estimating that only 99,000 borrowers currently have these loans, they offer a great opportunity for homebuyers.
- USDA home loans can be used in conjunction with NC-specific programs and grants for first-time homebuyers.
USDA Eligible Properties in Raleigh, Durham, and Surrounding Areas
USDA eligible homes can be found throughout the greater Raleigh area, including towns like Zebulon, Wendell, Clayton, Smithfield, Oxford, and Louisburg. If you meet the qualifications, the USDA home loan program can be an excellent fit for you. The process can be complex, but with the help of an experienced realtor, you can navigate it smoothly. If you’re interested in finding homes that qualify for USDA loans, check out our listings or contact us today!
Please note that it’s crucial to verify the eligibility of homes before making a USDA financed offer.