How is No Money / Zero Down really accomplished?

The USDA mortgage program allows home buyers to borrower up to 102% Loan to Value (LTV). Why the extra 2% in loan amount? Because the USDA home loan program allows the required 2% USDA Guarantee Fee to be rolled into the new loan amount, leaving the borrower with 102% USDA Home Loan.

USDA borrowers need to understand that USDA Home Loan guidelines do not allow Prepaid and Closing Cost to be rolled into the new loan balance. This means that if you have $180k USDA purchase loan in Washington or Oregon, the max Loan Amount will be the appraised value of $180k + the 2% USDA Fee. Is this example the borrower would be responsible for paying all closing cost and prepaid which amount to $3k-$5k.

 

So how to I really buy a home with Little or No Money Down?

The answer is simple. Let the seller pay your closing costs and prepaid.

As it turns out this is a very common practice for most USDA Mortgages in Washington and Oregon. A purchase agreement contains a line item for “seller paid closing cost” which the seller can use to contribute cash to pay the closing cost. With a 102% USDA Home Loan and Seller Paid Closing Cost a home can be purchased in Washing or Oregon with no money out of pocket from the borrower.

 

What if the seller doesn’t want to pay my closing costs?

This can also be easily remedied. For example let’s say you have agreed with the seller to purchase a home for 170k using a USDA Home Loan, but the seller does not want to pay the closing cost. In this scenario the easiest solution is to increase the purchase price to $175k with a $5k seller credit towards closing cost.

Problem solved! no money down, and buyer and seller both get what they want.

How do I start a Washington USDA Home Loan?

Contact us today and start the conversation. We are USDA Mortgage Specialists who focus exclusively on USDA Home Loans in Oregon and Washington. With a quick phone call we can answer all your questions and determine if a USDA home loan is the best option for your situation.

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