Do you wish you could buy a townhouse, condo or single-family home in Carroll County, MD but don’t have the money for a downpayment? If you can’t pay cash for your new home you’ll need a mortgage. And, if you don’t have money saved up for a downpayment, the USDA loan might just make it possible to buy a home in Carroll County, MD.
What is a USDA Loan when Buying a House in Maryland?
The USDA (United States Department of Agriculture) loan is a government-backed loan to buy a house with no downpayment. It is perfect for anyone with a low-to-moderate income, a steady job, and good credit. It makes it possible to buy a house with very little money out of your pocket!
Advantages of the USDA Mortgage Loan
- It requires no down payment and the borrower can use gift money to cover closing costs and even accept up to 6 percent of the sales price from the seller in the form of closing cost concessions.
- There is no pre-payment penalty for a USDA-backed loan.
- The mortgage can also be used to purchase some manufactured homes.
- The USDA loan can be used to refinance a home as well.
Disadvantages of the USDA Mortgage Loan
Taking the bad with the good may be the name of the game if you’re interested in participating in this zero-down loan program, so let’s get to the “cons” of the USDA guaranteed mortgage.
While the fact that you must earn a low-to-moderate income to qualify for the USDA guaranteed loan may be considered an advantage, it may be a disadvantage if you earn over the maximum allowable income (see a lender to determine the current limits).
There are also eligibility requirements for the property you hope to purchase. Chief among these is that it must be considered “modest,” without luxury features, such as a swimming pool. The home must also be located in an area designated as “rural” by the USDA.
The USDA defines rural areas as “open countryside, rural towns (places with fewer than 2,500 people).”
If you hope to use the home as a rental, you won’t qualify for the program—it’s open only to those borrowers who intend on living in the home.
Here are a few other “cons” of the USDA Guaranteed Loan program.
- There is an upfront fee of 2.75 percent of the loan amount. Now, there is a bright side to this – it will be added to the loan so it’s not money you’ll need to pay out-of-pocket.
- Both the lender and the USDA subjects the loan to underwriting so expect closing to take a few weeks longer than other loans.
- No down payment required and 100 percent financing available.
- Certain repairs and closing costs may be rolled into the loan up to the appraised value of the home.
- The upfront guarantee fee may be rolled into the loan amount above the appraised value.
- The loan can be used to purchase existing or newly constructed homes and planned unit developments. Some condos are eligible.
- Interest rates are fixed and the loan has no prepayment penalties.
- Down payment assistance programs, seller concessions, gifts and grants from city and county housing development programs may be considered.
To use a USDA loan, the borrower must be purchasing a home in a rural area. The USDA defines “rural” as any town with a population of “25,000 or less that is not adjacent to a large city or that is not part of a continuous urban area.” The home must be “modest” in size. The average USDA home is 1,200 square feet. Homes with swimming pools are ineligible. The loan cannot be used to purchase income producing property, furniture or other personal property, an existing manufactured home or for a home with non-essential buildings and land. To determine if a particular property is eligible, visit the USDA Rural Development Property Eligibility website. For a borrower to be eligible for the USDA Guaranteed or Direct Loan program you must:
- Be a U.S. citizen or be admitted as a permanent resident.
- Not currently own a home within commute distance of the home you are buying.
- Have a dependable income.
- Have a credit history that proves you meet your financial obligations on time.
- Occupy the home as your primary residence.
An easy way to determine your income eligibility is by visiting the USDA Single Family Housing Income Eligibility website.