100 Percent Home Financing Available in Chester County Through USDA

By Ryan Dosen

 

Contrary to common belief, 100 percent financing opportunities were not completely extinguished in the real estate collapse of the late 2000s. Thanks to the United States Department of Agriculture (USDA), 100 percent financing loans are still available in certain circumstances and areas. The USDA has instituted its Single Family Housing Guaranteed Loan Program for the express purpose of helping “low to moderate income rural homebuyers achieve their dream of homeownership.”

But what does “low to moderate income” and “rural” actually mean for today’s homebuyer? I sat down with local mortgage expert Joe Gonzalez of Gateway Funding in Plymouth Meeting to help decipher the USDA’s special program guidelines, restrictions, benefits, and drawbacks.

 

Home Must Be In an Eligible Rural Area

The USDA is seeking to assist “rural homebuyers” and that means that any home purchased in the USDA’s program must be in an eligible rural area. To determine if a home is in an eligible rural area, the USDA has set up a website with eligibility maps. Lines are not drawn by city, township, or zip code, so you need to check out the maps to determine if a home is eligible.

Much of the area west of the Brandywine River is eligible, including parts of Chadds Ford, Kennett Square, and most areas west thereof. Most of West Chester, Exton and Downingtown are not eligible; however, many areas just north of Routes 30 and 202 are eligible until you hit Chesterbrook and King of Prussia.

Visit http://eligibility.sc.egov.usda.gov/ and select “Single Family Housing” under the Eligibility Menu to check a particular area.

 

Household, Not Individual, Income Limits

Only “low to moderate income” individuals will be eligible for the USDA’s program. In order to be eligible, a family of four (with two adults and two minor children) that is looking to buy a home in Chester County, PA can currently make a combined household income of no more than $93,450.

However, limits do change based upon the number of individuals in the home. If that family of four becomes a family of five with three minor children, the income limit jumps significantly to $123,350.

It should be noted that the USDA does deduct any annual childcare expenses from household income when calculating whether an individual will be eligible. So, if you have a family of four and make $100,000 per year, but you pay $10,000 per year in childcare, you could still be eligible.

 

Qualifying Versus Being Eligible for a USDA Loan

The geographical and income eligibility restrictions discussed above simply determine whether the USDA will guarantee your “rural” home loan and allow you the opportunity to obtain special financing through an approved lender. Once you’ve crossed this first eligibility hurdle, you still must qualify and be approved for your loan.

Gonzalez says that qualifying for a USDA-guaranteed loan is very similar to qualifying for a conventional loan. Debt-to-income ratios are important, as are credit scores. He says that though the FHA does not put a floor on qualifying credit scores, most lenders will set a base level, possibly somewhere around a FICO score of 640.

Lenders will also be required to verify income and assets, but possibly to a lesser degree than with more conventional financing.

 

The Benefits of USDA-Guaranteed Financing

Once you’ve qualified for your USDA loan and you’ve found an eligible place you’d like to call home, Gonzalez says that many benefits await, including:

• 100 percent financing, with up to 6 percent seller assist. USDA-guaranteed loans allow for 100 percent financing and no down payment. There is a “Guarantee Fee” of 2 percent, but it may be rolled into the loan amount. Sellers are also allowed to contribute up to 6 percent toward a buyer’s closing costs, allowing for the possibility of a buyer not having to put any money down or bring any money to settlement to pay for closing costs. Gonzalez had a recent client whose only out-of-pocket expense for their entire home purchase was a few hundred dollars for a home inspection.
• Lower Mortgage Insurance Rates. Government-backed loans, such as USDA and FHA loans, usually require the payment of mortgage insurance. However, the mortgage insurance premium for USDA loans (0.4 percent per year) is about one third of the premium for FHA loans (1.35 percent per year). For every $100,000 borrowed, you would pay about $112 in mortgage insurance per month for an FHA loan and only about $33 per month for a USDA loan.
• No maximum purchase price. The USDA states that there is no maximum purchase price for their loans, as “qualifying ratios and the applicant’s stable and dependable income will determine home affordability.” While this is all true, there exists a virtual glass ceiling for purchases due to the USDA’s maximum household income restrictions. Gonzalez says that $318,000 is the largest Chester County loan he’s secured for a client through the USDA’s program.

 

Keep Manhattan, Just Give Me That Countryside

Green Acres is the place to be if you’re looking for a no-money-down home buying opportunity in Chester County, PA. You won’t be able to use the USDA’s program to buy in West Chester or some of the busier areas, but venturing just a little bit outside of the activity could get you into a new home for the cost of a home inspection.

It may be worth driving 15 extra minutes each day to avoid putting $15,000 or $30,000 down on a $300,000 home purchase. You’ll probably get a lot more house for your money, too.

 

Ryan Dosen manages The Wayne Megill Real Estate Team of Keller Williams Brandywine Valley in West Chester, PA. For buyer or seller representation, or for more perspective on the local and national real estate market, please email rdosen@megillhomes.com and visit The Wayne Megill Team blog at http://www.PAHomesAndRealEstate.com.