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USDA Loans: Your “Secret” Option for 100% Financing!

When you think of the United States Department of Agriculture, best known as the “USDA,” what come to mind?

For most people, it’s choice cuts of beef, food inspections, or simply general guidance for the agricultural industry. For many others, it’s home loans. Specifically, it’s 100% financing (or 0% down) home loans.

Would-be homebuyers often experience issues with their downpayment. The cost of living and limited wages can make it extremely difficult to save even a small downpayment, which means many people simply pass on homeownership.

But what if there is a way to buy a home with no downpayment? If you are personally eligible and (arguably more important) want to buy a home in an eligible area, you can use USDA loans, the “secret” 100% program that could be right for you.

USDA Loans: The Secret Program for 100% Financing

Why is it a “Secret?”

To be fair, USDA loans are not a literal secret; the details of this loan option are not kept in hidden files in dark caverns of a dusty government building. But they are under-appreciated and not as well known as many other loan programs, such as conventional loans, VA loans, and FHA loans.

Probably the biggest reason that USDA loans remain a “secret” is a single misconception. Unfortunately, numerous people think USDA loans are only for buying farms, ranches, orchards, pastures, and other agricultural-related properties. If you’re not a farmer or rancher, you can’t use USDA loans; so the myth says.

But the USDA is committed to supporting rural development, helping to improve rural and suburban communities by providing home loans to buyers of many properties across the country. To reach this goal, they don’t just provide financing for farms, ranches, and other income-producing, agriculture-related properties; they also provide for the purchase of single-family homes, even some located in suburban areas.

So it’s not just farmers who benefit from this loan program. The USDA supports loans for anyone who wants to purchase a property, virtually any type of residential property, no matter what the borrower’s profession. So you could be an accountant working in the middle of downtown San Diego and, if you so choose, use a USDA loan to purchase a single-family home in the countryside.

And best of all, you can do so with no downpayment!

How Rare is 100% Financing?

There are a variety of benefits to using a USDA loan, but the biggest reason is 100% financing. Basically, you can get a loan for the entire (100% loan-to-value) purchase price. With other loans products, you may need a downpayment of 5% (95% loan-to-value) or 10% (90% loan-to-value), which can severely restrict your chances of buying a home.

This benefit is extremely useful for many buyers, allowing them to enter homeownership when other loans are unavailable. And as we’ll see, it’s also fairly rare.

Conventional Loans: At Least 3%

Conventional loans, which are supported by Fannie Mae and Freddie Mac, are the most common type of mortgage loans in the country. They bring terms that allow most buyers to qualify, and have helped millions of homeowners all across the country. However, they do require, in most cases, a downpayment of at least 3%.

This is one of the lowest downpayment requirements available, but it can still be hard for homeowners to save this amount. If you are purchasing a home valued at $300,000 (hardly a top-value property in many markets), you would need $9,000. Many people simply don’t have this type of cash in savings.

FHA Loans: At Least 3.5%

Another popular loan options, FHA loans bring generous terms that allow borrowers to purchase a property even if they have less-than-stellar credit scores. With these loans, you will need a downpayment of at least 3.5%, which equal $3,500 for every $100,000 in purchase price.

If your score is low (500 to 579), you will need a 5% downpayment, which is $5,000 for every $100,000 in purchase price. Want to buy a $400,000 home? (Again, a fairly moderate price in many markets.) Then get ready for a $20,000 downpayment!

Portfolio Loans

These loans are not supported by any government institutions, nor are they purchased on the secondary market by Fannie Mae or Freddie Mac (which is the case for conventional loans). They are instead kept by the lender, who places them in their “portfolio,” assuming both the potential profit and the risk created by lending money.

The downpayment for these loans varies because each lender, not a government organization, sets the standard. However, it’s not uncommon for lenders to require 10 to as much as 25% down for portfolio loans. Even if it’s “just” a 10% downpayment, on a $400,000 home that would equal $40,000.

VA Loans: The Only Other 0%-Down Option

The only other government organization that will support 100% financing is the Department of Veterans Affairs (VA). To be eligible, however, you need to be a qualifying veteran or active service member, so many borrowers will be left ineligible. If you are eligible, however, VA loans are certainly worth looking into.

USDA Loans: Property Eligibility

USDA loan eligibility area (San Diego)
The areas in tan are ineligible for USDA loans, leaving lots of opportunities. (Image from April, 2020)

While there are borrower requirements, the biggest snag for a USDA loan is the property eligibility. With these loans, the property has to be in a designated rural or suburban area. If you look at the map provided by the USDA, you’ll see that the San Diego metro area is not eligible for a USDA loan.

However, many nearby areas are eligible. Homes in rural locations near the Cleveland National Forest, for example, are eligible for USDA loans. You could use a USDA loan to purchase a home in Ramona, roughly 35 miles from downtown San Diego, or Alpine, about 30 miles from San Diego.

The “Secret” is Out! Take Advantage of Zero-Down USDA Loans Today

If you are interested in purchasing a home in the countryside or in an eligible rural location, contact the staff at San Diego Purchase Loans today. We’ll take a common sense approach to underwriting your loan, and once approved we can send the loan to the FastTrack system, which will result in fast completion of your application!


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Chad Baker, CrossCountry Mortgage   
NMLS# 329451 | CCM NMLS# 3029