$ 0 mortgage that buyers overlook
Jon Gorey – Globe Correspondent
April 6, 2021 6:48 p.m.
Whether looking for more space or more affordable prices, many pandemic-era homebuyers, newly detached from their daily commutes, sought a home away from Boston.
So far out of town, in fact, that they may be eligible for a loan from the USDA, a lesser-known mortgage product backed by the United States Department of Agriculture. USDA loans have nothing to do with agriculture, and they offer attractive benefits for low- and middle-income homebuyers – namely the ability to secure a mortgage on a primary residence without a down payment. .
“USDA is a great option for rural borrowers, primarily because it offers 100% financing,” said Julienne Joseph, associate director of government housing programs at the Mortgage Bankers Association. “So there is no minimum down payment required for rural borrowers. ”
The main disadvantage of a USDA loan is that unlike a MassHousing or Federal Housing Administration (FHA) mortgage, there are geographic restrictions: the loans are meant to encourage home ownership especially in rural areas.
But you don’t have to venture too far from Boston to reach USDA country. Eligible areas include many pleasantly pastoral suburbs and coastal communities closely associated with Greater Boston, such as Sudbury and Sherborn, Ipswich and Essex, Easton and Bridgewater, and much of Cape Cod, according to the USDA Online Eligibility Card. Some properties in Hopkinton – famous 26 miles from downtown Boston on foot – are also eligible.
There are two main types of USDA single family mortgage programs. USDA Direct Loans are offered by the agency itself to low-income and very low-income borrowers, and can have longer loan terms (up to 33 or even 38 years), payment and subsidized interest rates between 1% and 2.5%. However, USDA Direct Loans also have the most restrictions: They cannot be used to buy a house with an inground pool, for example.
The most accessible USDA mortgage is the secured loan. These mortgages are issued by private lenders, but have the explicit support of the federal government, and they are also available for moderate income households. As of 2020, Boston-area borrowers could earn up to $ 154,900 per year, or north of $ 200,000 for families of five or more, while still being eligible for a USDA secured loan. In most other areas of the state, the income limits ranged from $ 110,850 to $ 112,850 and from $ 146,300 to $ 148,950 for a large family.
Individual lenders may have their own credit requirements or underwriting criteria, but USDA loans provide flexibility when it comes to credit. Borrowers with a credit score above 640 can usually get streamlined approval; those with lower scores, but with otherwise strong claims, may also be able to gain approval if they explain their situation and can demonstrate other sources of creditworthiness, such as a history of payments from rent on time.
“While a mortgage can’t be automated through digital underwriting, if they can’t get clear approval that way, most programs allow some level of manual underwriting that allows a human underwriter to take into account. consideration any explanation. that the borrower may be able to provide, ” Joseph said.
USDA loan rates tend to be quite competitive compared to conventional mortgages, Joseph said. “All interest rates are fairly subject to investors and can vary from lender to lender,” said Joseph, “but generally USDA rates are competitive with all other programs.
There are, however, other drawbacks. While most lenders require borrowers to pay for private mortgage insurance if they can’t make a 20% down payment, USDA borrowers don’t need to pay PMI, even if they don’t. make no down payment – which is a nice plus. However, to maintain the fiscal stability of the program, the USDA charges a pair of fees to lenders, which are usually passed on to borrowers.
The first is an initial “guarantee fee” currently equal to 1% of the total loan amount, according to Bankrate, which can be incorporated into the mortgage. A separate annual fee, currently 0.35% of the remaining balance per year, is paid monthly.
Federal loan programs also have a persistent reputation for sometimes slow responsiveness, but Joseph said the agency has worked to speed up turnaround times. “I know the USDA has made significant progress over the past two years to make sure their treatment is as effective as possible, to make sure there is no delay in deadlines. execution in order to close, ”Joseph said.
Finally, USDA loans are a fairly niche product – only 475 were issued statewide in the past fiscal year, according to a USDA spokesperson. So after check the eligibility of a property on usda.gov, you will want to find a licensed lender who has some experience with the process.
Jon Gorey blogs about homes at HouseandHammer.com. Send your comments to [email protected]. Follow him on Twitter at @jongorey. Subscribe to our free real estate newsletter on pages.email.bostonglobe.com/AddressSignUp.