Homebuyers

Don’t Have a Down Payment? Get 100% Financing on a Home with a USDA Loan

For many renters, homeownership may feel out of reach. Saving up for a down payment and coming up against financial obstacles may make the idea of buying a home of your own seem impossible.

But what if you could purchase a home without having to hand over tens of thousands of dollars to your lender upfront? That's where U.S. Department of Agriculture (USDA) loans come in.

Designed to make homeownership more affordable, USDA loans help first-time and repeat buyers purchase primary homes outside of cities—without having to put any money down. These loans offer 100% financing, so buyers don’t need to make a down payment.

"Many assume they're only for farming communities, but they actually cater to rural and suburban areas where many renters could qualify without realizing it," said Venus Sherrill, a loan officer for New American Funding based in Dallas, Texas.

USDA loans are more widely available than many buyers realize

Many homebuyers associate USDA loans with agricultural areas. However, these loans are more widely available than they might think.

About 97% of the U.S. land area is within USDA-eligible boundaries, according to a Housing Assistance Council report. About one-third of the nation's population lives in eligible areas.

These loans provide an opportunity for house hunters in rural and suburban regions to buy a home without having to make a down payment.

To find out if an area is eligible, check the USDA's online address locator.

Why 0% down on a home makes a difference

Saving for a down payment may take years and has the potential to delay your path to homeownership.

USDA loans eliminate this obstacle by requiring no down payment, allowing qualified buyers to put their savings toward other expenses like moving costs, home furnishings, or building an emergency fund.

In addition to requiring 0% down, USDA loans also offer competitive mortgage interest rates. This may make those monthly mortgage payments more manageable.

However, the biggest mistake USDA buyers make is thinking that they won't have to bring any money to the closing table.

Buyers will still have to pay some lender fees, cover the costs of an appraisal to have the home valued, as well as pay third-party fees for the property’s title and for the mortgage escrow.

Those costs can be thousands of dollars, but you may be able to roll some of these expenses into your loan. That may reduce how much money you need for closing.

Are USDA loans only for low-income buyers?

Another common misconception is that USDA loans are exclusively for low-income borrowers.

While the program does have income limits, they are often higher than you might assume. These limits vary by location and household size and are generally no more than 115% of the median income in the area where you hope to purchase a home.

This flexibility ensures that many families, even those with moderate incomes, can qualify.

If you're unsure whether you meet the criteria, meeting with a loan offer may be beneficial. Getting preapproved will clarify your eligibility and give you an edge in competitive housing markets.

"The most common mistake is not getting preapproved or assuming they don't qualify before speaking with a lender,” said Sherill. This often leads to delays or even missed opportunities."

Venus Sherrill NMLS # 1652681