Real estate is great because there are multiple ways you can acquire it with low or no money down, depending how you structure the acquisition. One of my favorite loan products to acquire real estate with very little out of pocket is the USDA loan. The USDA loan is actually a loan product sponsored by the U.S. Department of Agriculture. Who would have thought? A lot of people are unaware that this loan product even exists. The USDA actually has a few different loan products but the one I am going to discuss here is the “Single Family Housing Guaranteed Loan”. Keep in mind that this loan is for owner occupied single family houses only, meaning you have to live in the property for at least a year in order to use it. You also cannot use it to “house hack” a duplex, triplex, or fourplex.
The USDA loan enables you to purchase a property with 0% down. That’s right $0 down payment! The USDA sponsors these loans to encourage people to buy homes in “rural” areas. Now you might think that you have to buy a home in the middle of nowhere to be able to use this loan, but that is not the case. The USDA has a map on their website that shows the eligible areas in which you can use this loan. You just simply type in the address and it will tell you whether the property is in an eligible area or not. Many would be surprised that a lot more areas are considered “rural” than they would think. For example, in Beaver County areas such as Center Twp, Brighton Twp, Economy, and Independence Twp. are all eligible. As for Butler County, basically everywhere except Cranberry and the city of Butler is eligible.
USDA also allows you to ask the seller for up to 6% of the purchase price to put towards your closing costs as a seller assist. If you purchase a house and ask for the full 6%, you could possibly walk away from the closing with a check! Tell me that wouldn’t be pretty cool!
You do still have to pay PMI, or private mortgage insurance, since you are putting less than 20% down on the loan. The banks require this on high leverage loans to insure against default. The PMI on USDA loans is only about half of what it is for conventional and FHA mortgages though. The USDA also has an income limit on those that can qualify for the loan. This is usually an income of no more than 115% of the area’s median income. This varies by county but that still enables a majority of the people to qualify for the loan.
A great strategy for someone could be using the USDA loan and doing a Live In Flip. This would enable you to acquire the property for almost nothing out of pocket and be able to save the money for renovations. A lot of areas eligible for USDA loans have great schools and high property values which would make them great areas for flipping.
You could also use it to acquire a property that you live in for at least a year, then go and rent it out after you move onto the next place. You are essentially having the tenants pay for the property for you in this case since you acquired it with very little if any money out of your own pocket. This also requires you to make sure you only buy a great deal in order to cash flow with 100% financing. Be careful of that if you decide to go this route. Make sure any property you buy you run the numbers on it for when you would move out to make sure the rent covers the mortgage by a decent amount.
As you can see, the USDA loan is a terrific product for someone to acquire real estate that is limited on down payment funds. If you live in an area that isn’t just outside a major city, there is a good chance the property will qualify for a USDA loan. This is especially true in Beaver and Butler Counties. If you have an interest in using a USDA loan to get a property, feel free to get in touch!