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Do USDA Loans Require a Down Payment?

Updated November 30, 2018

Accessibility to homeownership is a pillar of the USDA loan program. one of the most important benefits of USDA loans is that qualified borrowers can get a loan for a primary residence with $0 down.

The USDA $0 down program helps make homeownership affordable and accessible for so many moderate- and low-income families. It can take years to save just a 3 or 5 percent down payment for conventional mortgage financing.

Pros/Cons of Making a Down Payment

By removing the USDA loan down payment requirement, the program opens the door to individuals without substantial savings.

Let's look at some of the pros and cons of buying a home with no money down.

Pros:

  • Buy a home sooner
  • More cash available for other expenses
  • Easier access to homeownership

Cons:

  • Less equity at first
  • More vulnerable to volatile property values
  • Higher principal means higher monthly payment

Whether or not you're able to make a down payment, it's important to purchase a home you can comfortable afford. You can use your income to calculate USDA loan affordability.

Without a USDA down payment, borrowers are a higher risk for getting upside down on their mortgage since they won't have any built-in equity. In areas where property values are declining rapidly, it's a particularly important risk to consider.

But for many Americans, a down payment means the difference between buying a home now, in 5 years, or in some cases not at all. In that light, the benefits of the USDA loan down payment options may outweigh the risks.


Common Down Payment Scenarios

The USDA $0 down loan program makes homeownership possible for many people who might otherwise get stuck renting. Let's see how a USDA down payment stacks up to other available loan programs.

For this example, let's assume our borrower is purchasing a $250,000 home:

Loan Type Down Payment % Down Payment $
USDA 0% $0
VA 0% $0
FHA 3.5% $8,750
Conventional 3-5% Minimum $7,500 - $12,000 or more

Conventional Loans

Conventional loans used to require a 20% down payment, but in recent years a variety of products have gained popularity. Today, 5% down conventional loans are increasingly common. Some lenders offer conventional loans with down payment options as low as 3%, those low-down payment conventional loans may require higher credit scores and other compensating factors.

FHA Loans

FHA loans require a minimum down payment of at least 3.5%. This low down payment program is a good option for some homebuyers, but comes with a big drawback. FHA loans now require annual mortgage insurance premiums for the life of the loan, regardless of your equity. This ongoing expense can make a big dent in your monthly housing budget.

VA Loans

The VA loan program is the only other $0 down loan program on the market. VA loans are available to Veterans, active duty servicemembers and select others who meet the VA loan program's service requirements. VA loans come with an upfront funding fee that eligible borrowers typically finance into the loan.

Using Gift Funds with a USDA Loan

Just because USDA $0 down loans are available doesn't mean you don't have the option to make a down payment on a USDA loan. There are benefits to making a down payment on USDA loans, such as lowering your monthly payment by reducing the total principal.

Some USDA borrowers with limited savings use gift funds toward a home purchase. Gifts from family members or other qualified donors can be applied toward a USDA down payment.

USDA down payment options make homeownership possible for many deserving Americans. The USDA $0 down home loan can be a great fit for homebuyers looking to purchase a home in a rural or suburban area. It's important to explore all available options and find the home loan that best fits your unique situation.

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