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Release Date:
November 3, 2022

How to Qualify for a Zero-Down Payment USDA Loan

Featuring:
Casey Morris, Fairway Loan Officer Christy Solar

USDA loans offer homebuyers a 0% down payment option for purchasing a home. Fairway loan officer Christy Solar shares the advantages of USDA loans and breaks down common misconceptions about this great loan program.

Transcript

Introduction: Welcome to the Homeownership Insights Podcast, your leading mortgage podcast, sponsored by Fairway Independent Mortgage Corporation. Listen as experts from across the country share knowledge to help homebuyers and homeowners make the best decisions in their homeownership journey. Our next podcast begins right now.

Casey Morris: Welcome back to the Homeownership Insights podcast. I'm Casey Morris, and today I'm talking with Fairway Loan Officer Christy Solar, who is based in Louisiana and is going to be talking with us about USDA loans. So welcome, Christy. Thank you so much for being on the podcast.

Christy Solar: Hey, Casey, thanks so much for having me.

Casey Morris: Absolutely. So, I'm really excited to talk about this because I think USDA loans are such an interesting resource for homebuyers. And I think that it is so important for people to understand how useful they are and where they apply and who might qualify and all of those things. So, I thought we could just get into, you know, get right into it. And if you wouldn't mind starting off talking about what are some of the key benefits of the USDA loan program?

Christy Solar: So I love talking about USDA. I feel like our government backed-programs, 100% programs like USDA, which a lot of people refer to as rural development -- so if anyone listening has heard that term, that is one and the same loan type. And our other loan, VA, they kind of get bad press. Right? And I think it's a lot because people do not understand, when people think 100% financing, Casey, they think super low income, lower credit. That's not the truth. Right?

So, USDA, it serves the need for those families that maybe don't have the down payment saved up or have it but want to keep it, right? Because when you buy a home, you also buy any issues with it. So, I love USDA because I think it's a great way to get a great rate to save your money and to keep that hard-earned money that you have saved up to do repairs or additions or just the future for your family. Right? So, it's a great program.

Casey Morris: Yeah. I think that's such a great point about, you know, it's not that people don't have the money saved up, but when you buy a home, there are so many expenses that come up, whether it's repairs or you have to buy new furniture or so many costs. And the more money that you can keep back, for some people, that just makes it that much more palatable because you don't feel like you spend everything that you have just to get into the house.

Christy Solar: That, you know, a lot of people have this connotation of money like we do in everyday life. Right? If somebody laid$10,000 out in front of you, that's a lot of money. Placing that same money over 30 years, does it save you a lot in monthly payments? So, in some cases, let's say you had $10,000 to put down, that may only save you $55, $60 a month on your payment. So, if you take that same ten and have it as a safety net, or if something breaks or repairs that sometimes will benefit the buyer better than just putting that lump sum down on the mortgage -- and every buyer's different, that that's why it's so important that they really sit down with their loan officer and talk about your future. Right?

How long you're going to be in the house, what are some expenses you have coming up? Right? Those are important things to know. It's not just about, because it's zero down payment and I have the money, so I don't need to do it. In some cases, it's still the right decision. So, it's important that everything is looked at. You have a full pre-approval and you know your options. But USDA is a great one.

Casey Morris: Yeah, absolutely. And you mentioned that sometimes there's this misconception that because it's a zero down loan, it must mean that the buyer is not in a great position to buy a house, doesn't have the money or the credit. Is there any other misconceptions out there about USDA loans, for example, that they're only available in extremely rural areas or anything like that?

Christy Solar: I was just about to say that, Casey, so great point. A lot of people when they hear rural think well, because, like for instance, I'm speaking to you and I'm right outside of Baton Rouge, Louisiana, which is the capital city. A lot of people, when they think rural, think there's no way I can get 100% financing within city or town limits of a major city. That is not true.

In our own capital city here in Louisiana, Baton Rouge, there's a lot of areas that we would consider in the heart of the city, the busy population, and they still qualify for USDA. Everyone can look it up, if you simply Google USDA property eligibility or USDA areas, there's a map, Casey. And you can put in your own address and you can see what areas around you qualify for. But it really is, I'm glad you brought that up. That is a big misconception that it's a rule that is no longer true.

Casey Morris: That's a great point, that people can look it up because the whole process of applying for a mortgage obviously can be a little bit overwhelming. And somebody might hear this and think, I don't even know where to begin. This probably isn't an option for me, but it actually is so easy to just go to the USDA website, and we'll put that in the show notes so that you can look up and put in the address of the property that you're looking at and find out does it qualify? So, it's just a great resource to keep that option on the table.

Christy Solar: It is a great resource and there's an interactive map there where if you get to that address, you can zoom in and out and find other areas around there. It's very clear cut, very easy to reach. I always tell consumers, listen, you want to get a professional, but it doesn't hurt to look anyway. Right? But you have to make sure you're looking in the right spot. So, thank you for providing that.

Casey Morris: Yeah, definitely. We'll make sure to include that. And besides being in a qualifying area, obviously that's one of the number one things for the U.S. alone, is that the property has to be in a USDA designated area. What are some of the other qualifications that someone would need in order to be eligible for a USDA loan?

Christy Solar: Well, there's also income limits. Now, this is, we're not going to go over specific limits for specific areas because every area is different. But for instance, where I live, where I'm speaking from in Louisiana down south and a lot of areas have higher income limits. But as of right now, you could have a family of five or more people and make as a family of five around $136,600. Now, again, that is in my area for five people or more in the family.

But there is a misconception, as we talk about misconceptions, that USDA has to be super low income. That's not true. Right? There are a lot of things that when your lender looks at it, if you're self-employed, there's different ways we look at income.

But it's so important if you're even considering buying that you know all of your options. And that's what we do so well at Fairway, our loan officers really look at everything and give you everything that you qualify for, even if maybe you've never heard of the program. Right?

Casey Morris: Yeah, definitely. And I think that's such an important point with USDA, because the income guidelines there is, you know, you can go on the website and look up what the income limits are for your area. But even that doesn't tell the whole story because USDA allows you to take these deductions based on whether you have minor children or you have someone in the home who has medical expenses. So, I always think you really do want to talk to a loan officer because that's who's going to be able to do those deductions for you and figure out what you qualify for. Don't discount yourself or assume that you're eligible just based on that initial glance that you find online.

Christy Solar: That is correct. And childcare is a big one, right? If you are claiming childcare, in some cases, we can deduct that. There's a lot of things that can be done. And people, I think, make their own judgments based on what they've heard or what someone told them years ago. This program has evolved so much. It is amazing. They are really trying to help a lot more families realize the American dream and that's why I'm so passionate about this program.

Casey Morris: And I was just wondering if you can talk about it because we've talked about, you know, you have to be in a particular area, your income needs to qualify. But what types of properties can you buy with the USDA? Because I know all different loan programs have certain guidelines about, you know, you can buy this type of home, but not this one. So, what is it with USDA? What could you look at?

Christy Solar: Oh, USDA is going to be specific to your primary residence, Casey. So, the main rule is you have to be occupying the property that you're buying, whoever's on the loan as their primary residence. So that is kind of the key. So that takes away any opportunities for investment properties or second homes. It's just going to be a primary residence.

Now with USDA, it has different layers. And again, you'll need to check with your loan officer, different loan officers are approved for different programs. But for instance, for me, we will do a single-family home, right? That's going to be your primary residence. We will also, in a lot of cases, look at doublewides. Right? Manufactured housing. So don't limit what you think the program does until you see the loan officer.

But the main thing to remember about USDA is it is for your primary residence. There's townhome options. There's condo options, just like the normal loans. I say normal because everybody normally thinks of conforming or conventional, but it runs the same rules.

I want to add that just because a property is a foreclosure, it does not mean that it will not qualify for USDA. We don't have enough time today to go over all the specific rules, but I know at Fairway we offer things the USDA allows, like escrow hold-back. For instance, Casey, let's say there was a hole in the wall in this foreclosure or a broken window or maybe a piece of flooring in a bedroom that needs to be corrected. Those are things that people would look at and think this would not qualify. USDA actually allows in certain cases, if it does not affect the livability of the home, is not a hazard or not like a major thing like AC or replacing the roof, they will allow those repairs in some cases to even be done after closing up to a certain amount. And that's huge that a lot of people don't know that.

Casey Morris: That is a really, really great point because, you know, that can open up the pool of houses that someone might be able to look at if they know that it's not going to immediately be shut down or that they're going to be denied because of certain conditions of the property.

And that makes me think, too, USDA renovation loans, which maybe we can touch on briefly, which I think are such an interesting products because again, it's the zero down, but you can finance the purchase of the home plus some of those renovation costs. So can you talk a little bit about that and how that might help homebuyers who are looking for something that's a little more affordable, but they don't have that cash on hand to make the repairs?

Christy Solar: Sure. So again, today, we're not going to dive really deeply into all of the statistics of it or what exactly cash out of pocket, because every house is different. But the great thing about USDA renovations, you can have a house -- I know in Louisiana, we have a lot of floods. So, we call them flooded and gutted, right? It's just the structure of the home. You can go in in some cases with the USDA renovation and get the money to bring this home back to life. And a lot of people don't realize that, you know, that you can do that with the USDA loan.

Casey Morris: That's great. Yeah, I think that's really important for people to know because the renovation option really does open up the pool of houses that you can look at and the options that you have to get a house that maybe isn't in perfect condition and turn it into your dream home and do it with one loan is a pretty incredible option.

Christy Solar: Incredible option. I totally agree.

Casey Morris: And then I wanted to ask you, if somebody doesn't qualify for a 0% down USDA loan, what are some other low or no down payment options that may be available to them or that they might be able to consider? And, of course, their loan officer, like you said, is going to walk them through all of that. But, you know, just so that people don't get disheartened if they realize, oh, the place I want to buy, the area I want to buy is definitely not USDA. Now, what do I do?

Christy Solar: So of course, we know we have VA. So if your spouse or you have entitlement, sometimes that is an option. But besides our govey programs, like we call them, there are tons of grants and bonds throughout the United States. Each area has kind of its own type of programs, but they are -- I know for us, we have three different programs that we're able to offer that are still like 100%. And it's what a lot of people don't understand.

Also when we say the term grant or loan, those are normally not just freestanding loans. Those are loans tied to an FHA, a conventional, a VA, or USDA. So, if somebody did not let's say, do not qualify for USDA, I would look to see if there's a grant program that could supplement that FHA down payment. Right? There's a lot of options. Also going back to grant and bond. I know I'm getting off on a tangent here, but you can sometimes use those along with USDA to get closing costs covered. Right? So, there are so many programs out there.

I think I'll just basically sum it up and say, if you were considering buying, there is never a bad time to start the process to see what is best for you and your family, to see what areas the programs you want, like the USDA, you know, are available in your hometown, so that when you're looking, you really have a good pulse on the market. But there are some amazing programs out there that we can help you supplement those down payments that USDA does help.

Casey Morris: For anyone who's listening, who doesn't quite know what the grant and bond programs are, those are state and local programs that provide homebuyer assistance, either in the form of down payment assistance or closing cost assistance. Sometimes it's a second forgivable loan, sometimes it's a grant. They take all different shapes, but the goal is the same. It's to help worthy homebuyers get into a home by providing some of that cash up front and making a little the transaction a little bit easier on them.

Christy Solar: That is correct. And I want to say to that, if anyone is listening to this, I've had families that we serve come and tell me I was so nervous to apply because I knew I didn't have the reserves. But my family really needs a home. And when I say reserves, that’s money in the bank. Right? I don't have this much money in the bank. I'll say to you that our feeling is that everyone deserves a chance of homeownership, and these programs that are set up are your way to get that. Right?

And at Fairway, we want to love you through the process. And let's say that you're not ready. We even have programs in house that can help you improve your credit and get you where we need to be. Let's say that your debt-to-income maybe is too high for USDA. We will work with you and tell you how to rectify that.

So don't feel like it's going to be a no. We never like to say no because it isn't a no. It is a maybe not right now, but we're going to get you on the right track. And that's what I'm so proud of with our teammates at Fairway that we really, genuinely want to help all homeowners have the chance of owning a part of the American dream, and that is owning your own home.

Casey Morris: Yeah. And I think that that really underscores your point, you know, to connect with a loan officer, because when you do connect with somebody who has been in the business for a long time and understands these programs and is really there to help you, whatever your situation is now, it just makes all the difference. You don't have to find everything by yourself online. You don't need to figure it out beforehand. You just need to find a good loan officer who can walk you through the process, help you figure out your options, come up with a strategy, which is something that Fairway does really well. And I think it's just so important to make that connection probably earlier than people think that they need to.

Christy Solar: Yeah, I always tell everybody, even if you're thinking about it, like even long term, I had someone called the other day, Casey, and said, I may not be looking to buy till next year or the year after, but so many people are scared of that credit pull. But that is one pull and it is good for an extended period of time. We only had it one time, but that pull gives this insight to your credit history, and that helps us build a plan. So, if you're listening to this and even if you say, Hey, I have a year or two left on my lease, it is never a bad time to have your credit looked at my mortgage professional and tell you what you would need to do to get on the right track. Don't be scared.

Casey Morris: That's great advice. Well, Christy, thank you so much. I really appreciate all of your insights. And again, I think this is just a really great program and hopefully this will help more people learn about it and just reach out wherever they are in their homebuying journey.

Christy Solar: Thank you so much, Casey. And I will say, it is an amazing program. I speak with USDA leaders all the time. They have so much money and people are not taking advantage of it. This is the time to get out there, get those funds and make beautiful memories in your new home.

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Licensing & Disclaimers

Christy Solar

NMLS #406126

USDA Guaranteed Rural Housing loans subject to USDA-specific requirements and applicable state income and property limits.

This advertisement does not constitute tax advice. Please consult a tax advisor regarding your specific situation.

A down payment is required if the borrower does not have full VA entitlement or when the loan amount exceeds the VA county limits. VA loans subject to individual VA Entitlement amounts and eligibility, qualifying factors such as income and credit guidelines, and property limits.

Down payment assistance:**Eligibility subject to program stipulations, qualifying factors, applicable income and debt-to-income (DTI) restrictions, and property limits.

†Debt-to-income (DTI) ratio is monthly debt/expenses divided by gross monthly income.

The information in this podcast is distributed for educational purposes only. The information is not guaranteed to be accurate and may not entirely represent the opinions of Fairway Independent Mortgage Corporation.

Copyright©2022 Fairway Independent Mortgage Corporation. NMLS#2289.4750 S. Biltmore Lane, Madison, WI 53718, 1-866-912-4800. All rights reserved. Fairway is not affiliated with any government agencies. This is not an offer to enter into an agreement. Not all customers will qualify. Information, rates and programs are subject to change without notice. All products are subject to credit and property approval. Other restrictions and limitations may apply. Equal Housing Opportunity.

Fairway is required to disclose the following license information. AZ License #BK-0904162; Licensed by the Department of Financial Protection and Innovation under the California Residential Mortgage Lending Act, License No 41DBO-78367. Licensed by the Department of Financial Protection and Innovation under the California Financing Law, NMLS#2289. Loans made or arranged pursuant to a California Residential Mortgage Lending Act License; Georgia Residential Mortgage Licensee #21158; For licensing information, go to www.nmlsconsumeraccess.org; MA Mortgage Broker and Lender License#MC2289; Licensed Nevada Mortgage Lender; Licensed by the NJ Department of Banking and Insurance; Licensed Mortgage Banker-NYS Department of Financial Services; Rhode Island Licensed Broker & Lender; Fairway Independent Mortgage Corporation NMLS ID #2289 (www.nmlsconsumeraccess.org).

The information in this podcast is distributed for educational purposes only. The information is not guaranteed to be accurate and may not entirely represent the opinions of Fairway Independent Mortgage Corporation.

Copyright©2022 Fairway Independent Mortgage Corporation. NMLS#2289. 4750 S. Biltmore Lane, Madison, WI 53718, 1-866-912-4800. All rights reserved. Fairway is not affiliated with any government agencies. This is not an offer to enter into an agreement. Not all customers will qualify. Information, rates and programs are subject to change without notice. All products are subject to credit and property approval. Other restrictions and limitations may apply. Equal Housing Opportunity.

Fairway is required to disclose the following license information. AZ License #BK-0904162; Licensed by the Department of Financial Protection and Innovation under the California Residential Mortgage Lending Act, License No 41DBO-78367. Licensed by the Department of Financial Protection and Innovation under the California Financing Law, NMLS #2289. Loans made or arranged pursuant to a California Residential Mortgage Lending Act License; Georgia Residential Mortgage Licensee #21158; For licensing information, go to www.nmlsconsumeraccess.org; MA Mortgage Broker and Lender License #MC2289; Licensed Nevada Mortgage Lender; Licensed by the NJ Department of Banking and Insurance; Licensed Mortgage Banker-NYS Department of Financial Services; Rhode Island Licensed Broker & Lender; Fairway Independent Mortgage Corporation NMLS ID #2289 (www.nmlsconsumeraccess.org).

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