Millennials have surpassed Baby Boomers as the nation’s largest living generation, according to the U.S. Census Bureau. This generation is forming most of the new households and buying a majority of the new and existing homes. One-half of all U.S. homebuyers are younger than age 36, according to recent housing trends.
However, while many Millennials are buying homes, many others are not. That’s because, financing hurdles are keeping a significant number Millennials out of the market. The most common roadblocks include student loan payments and high rental costs that sap the ability to accumulate a down payment on a mortgage. This results in a “rent trap” that is difficult for many to escape.
There is, however, a little-known mortgage alternative available through the United State Department of Agriculture (USDA) that can be a boon for many Millennials, as well as, other first-time homebuyers.
The USDA offers no-money down mortgage loans to consumers. Generally, metropolitan areas are excluded from USDA programs, in favor of rural areas, but not always. The USDA classifies a surprising number of suburban areas as rural.
In lieu of a down payment, USDA requires a one-time “guarantee fee,” currently 1%, which is spread across the life of the loan. A zero-down loan enables would-be purchasers to buy a home much sooner than they would otherwise, and escape the rent trap. There is also a way to side-step private mortgage insurance (PMI). Instead, the USDA requires an annual fee that is distributed across the monthly payments. The recent annual fee, as of October 1, 2016, is .35% of remaining principal loan balance.
To qualify for a USDA mortgage loan, applicants must meet income requirements determined by their state of residence. Single-family income eligibility is determined first by state, then by county. For home buyers who meet these requirements, this could be the best loan you’ve never heard of, placing you on the fast-track to home ownership.