That said, one mortgage product is increasingly becoming a popular option for low- and medium-income earners looking to buy homes without forking out thousands of dollars in upfront fees and monthly payments.
United States Department of Agriculture (USDA) loans are zero-down mortgages intended for homebuyers who wish to purchase primary residences in locations designated by the government as "rural."
Thanks to its 100% home financing option, the USDA loan frees up cash you would otherwise spend on a down payment for a conventional loan, thus allowing you to redirect the money towards closing costs, moving expenses, and settling in. In addition, you also get to enjoy other perks, such as lower mortgage insurance and attractive lending terms.
If you're planning to buy a home but are struggling to raise a down payment, then the USDA Loan Program might be the solution. Read on to learn everything you need about this home financing initiative.
Are you a Hometown Hero? Find out your eligibility for the Hometown Heroes Loan Program in Bradford County, Florida.
Overview Of The USDA Loan Program
USDA loans are zero-down payment mortgages designed to aid people living in rural and suburban areas purchase primary residences. These mortgages are typically provided by USDA-approved lending institutions rather than the USDA itself. They generally carry lower mortgage insurance and interest, making them some of the market's most affordable home financing loans today.
Both first-time and repeat purchasers are eligible for these loans as long as they meet the minimum income and credit requirements. However, the property they intend to purchase must be in rural areas and serve as their primary dwellings. Whether or not an area is designated as "rural" depends on its population. The USDA's definition of "rural" is so broad that it encompasses almost 97% of the country's total land mass. Consequently, it is possible to qualify for a USDA loan even if you're purchasing a property near a large city with a sizeable population.
Undoubtedly, the most significant feature that sets USDA loans apart from other mortgages in the market is its 100% home financing option. In other words, you don't need to make any down payment to qualify for a USDA loan. This distinctive feature incentivizes prospective buyers who need home financing to obtain these loans and buy properties in less developed parts of the country.
Nevertheless, USDA loans typically carry several fees you must be aware of when applying for this type of mortgage. For example, the loan includes a one-time charge equivalent to 1% of the loan amount. Borrowers are not required to pay it all at once but as part of the total loan payback. Additionally, borrowers of the USDA loan are required to make small monthly payments equal to 0.35% of the loan value to cover the USDA Program's operating costs.
Why Should You Consider a USDA Loan?
Suppose you're looking for an affordable home financing option to help you buy a primary residence. In that case, there are plenty of reasons why a USDA loan might be more appealing compared to other mortgage products in the market. These include:
No Down Payment Required
As you might already be aware, most conventional loan programs in the market require you to pay a down payment of between 3% and 20% to access home financing. However, this is far from the case with USDA loans. USDA loans provide 100% home financing thanks to the zero down payment options. This allows you to buy a home without saving up for years to raise exorbitant upfront fees.
Low Mortgage Insurance Premiums
Let's face it; Mortgage insurance is unavoidable for most low down payment loans. FHA loans, for instance, include upfront and recurring mortgage insurance premiums for the loan term. In contrast, conventional loans require private mortgage insurance (PMI) until the borrower buys 20% equity on the home. While VA loans do not carry mortgage insurance, borrowers must pay a funding fee determined as a percentage of the home purchase value.
Although USDA loans are similar in that they require an upfront Guarantee Fee and a yearly mortgage insurance cost, their rates are generally cheaper than FHA loans. Therefore, if you qualify for all the above mentioned programs, opting for a USDA loan can save you lots of money on mortgage insurance in the long run.
Attractive Interest Rates
It is not uncommon for mortgage lenders to demand high-interest rates to reduce the risk of originating a loan to a potentially defaulting borrower. Unfortunately, this might result in high monthly payments, increasing the entire cost of these mortgages.
This, however, isn't the case with USDA loans. Because the United States government guarantees these loans, authorized lenders are usually happy to provide USDA mortgages to borrowers at substantially reduced interest rates.
Can Be Used to Purchase Different Property Types
You can buy various properties with a USDA zero-down house loan, including mobile homes, fixer-uppers, condominiums, and single-family homes. The mortgage can also assist you in obtaining land for a new build home. That said, you cannot use this loan to buy multi-unit properties, vacation homes, and properties for commercial use.
What Are The Qualification Requirements for USDA Loans?
The USDA loan program is currently open to all citizens and permanent residents of the U.S. To be approved for a USDA loan, you not only need to express an intention to reside in the property you're purchasing but also satisfy various requirements stipulated by the USDA. These include:
Income is one of the most critical factors that USDA-approved lenders consider when qualifying you for a loan. However, calculating income eligibility for USDA loans is a bit more complicated than for other loans. Your lender will evaluate various aspects of your income when assessing whether or not you qualify for the program. These include:
Qualifying income is the income of the borrower (or co-borrower), and lenders use it to assess whether an applicant can afford the monthly mortgage payments for the loan they are applying for.
Your lender will want evidence of income, including your base salary and any bonuses, overtime pay, or commission earnings you intend to utilize to qualify. To use bonuses, commission, and overtime pay in your USDA application, you must demonstrate that these are dependable sources of income that are expected to continue even after you close on the property.
Eligibility income essentially refers to your income and those of any other adult household members. Lenders use this criterion to establish if you are eligible for a USDA loan in your location.
Your lender might request income records for all members of your family, even those who are not borrowers on the loan, to determine this figure. As a general rule, your household income must not exceed the income limits of the area you intend to purchase a property.
Adjusted Eligibility Income
Adjusted eligibility income refers to the income you have left after making household deductions such as childcare and medical fees from your gross income. As a general rule, your adjustable eligibility income must not be more significant than 115% of your area's median income to qualify for the USDA loan program.
While most USDA-approved lenders typically don't prioritize a borrower's credit history when evaluating their applications for the loan, having a good credit score can nonetheless be advantageous. This is because having a credit score above 640 automatically qualifies you for the loan through the automated underwriting system.
Nevertheless, having a credit score lower than 640 doesn't mean you are automatically ineligible for the loan. Despite having less than stellar credit ratings, many borrowers are still approved for the loan. Even so, having a lower credit score means your application will have to go through a manual underwriting process which can have more stringent lending regulations depending on your lender.
Debt-to-Income (DTI) Ratio
To qualify for a USDA loan, you must have a DTI of 41% or more minor. So, if you earn a monthly income of $5000, you shouldn't spend more than $2050 on debt payments. Put another way; you should not spend more than 41% of your monthly wage on debt repayment.
That said, qualifying for a USDA loan is still possible even if your DTI ratio is higher than 41%. However, depending on your lender, you might have to contend with more stringent lending conditions.
As previously stated, USDA mortgages can acquire various properties, including single-family homes, townhouses, condos, and modular homes. Nevertheless, for a property to be accepted for USDA funding, it must fulfill some fundamental requirements, including:
It should be your primary residence
It must be a solid structure that meets the required safety standards and have all the amenities required for a safe and comfortable occupation. These include running water, heating, plumbing, electricity, and garbage disposal
The site where the property is situated must have reasonable access to roads, walkways, and driveways
- The home must not be used for commercial or business purposes.
As mentioned earlier, USDA loans are meant to assist potential homeowners in rural regions purchase a home. Luckily, the USDA's definition of "rural" covers many suburbs, including those near large metropolitan cities.
According to the USDA, a "rural" area is any open terrain not part of an urban district. As per this definition, more than 97% of the nation's territory is permissible in the USDA loan program.
Understanding USDA Loan Limits
The vast majority of USDA loans do not have loan limits, the only exception being USDA Direct Loans. Unlike regular USDA Guaranteed loans, which approved lending institutions provide, USDA Direct Loans are offered directly by the USDA. It is worth noting, however, that these loans make up a tiny percentage of all USDA loans. So, if you're applying for home financing via the USDA, chances are you will be approved for a Guaranteed loan with no loan limits.
That said, if you specifically apply for a USDA Direct loan, you can expect a maximum loan limit of $970,000 if you're purchasing a home in a high-cost area and a loan limit of $336,000 for properties in other areas.
How Does USDA Mortgage Insurance Work?
Mortgage insurance for USDA loans typically comes in the form of a 1% upfront guarantee fee and a 0.35% annual fee. So, in addition to repaying the mortgage amount, your lender will require you to pay the yearly fee in monthly payments. Fortunately, you won't need to pay the mortgage insurance premiums separately from the actual loan since they are cumulated together.
When it comes to the 1% upfront fee, you can pay it in cash or include it in the total mortgage value. So, suppose you've taken a mortgage valued at $400,000. If you include the upfront fee in your loan, your net loan amount will be $404,000.
Top Outdoor Activities to do in Bradford County, Florida
Located in Northeast Florida, Bradford County is a quaint rural community with an estimated population of 28,303, according to the 2020 census. Its largest city and county seat is Starke.
Many visitors to this picturesque county typically enjoy various outdoor activities, including hiking, fishing, and hunting. However, the county certainly has a lot more to offer for adventurous people and individuals looking for a more laid-back outdoor experience.
Here are some of the best things to do when living in Bradford County:
Visit Andrew's Center at Santa Fe College
While colleges and universities aren't the first things that come to mind when most people think of recreation and fun, these institutions are usually bustling with a plethora of activities that are primarily free.
So, if you live in Bradford County, Florida, you should make a point of visiting Santa Fe College's Andrew Center in the city of Starke. This outstanding arts center is not only home to a historical museum but also a popular venue for live performances. The center hosts numerous events throughout the calendar year, including theatrical shows, art exhibitions, and symposiums.
Camp Out at River Rise Preserve State Park
If you're looking for respite from the scorching Florida sun in Bradford County, then you should probably organize a camping trip to River Rise Preserve State Park. The centerpiece of this vast park is the circular pool of cool, clear water formed by the Santa Fe River as it worms its way through the Florida countryside.
The park has more than 30 trails and a plethora of habitats to explore. Whether you want to enjoy some horse riding, hiking, fishing, or biking, you will find plenty of stunning sites around the park to indulge your interest.
Play Golf at Starke Golf and Country Club
A visit to Starke Golf & Country Club is a great way to relax and unwind in Bradford county's most important city. The golf course is known for its picturesque, tree-lined fairways, perfectly groomed grass, and water hazards on almost every hole.
It also features a 9-hole course that plays just under 3,300 yards, making it ideal for slotting a quick game between your day's activities.
Attend Strawberry Festival
The Strawberry Festival is an event that takes place every year in April in Bradford County. If you've got a sweet tooth, this is your chance to indulge in some of the tastiest berries, pies, and strawberry ice cream the Sunshine State offers. The festival also includes live music, entertainment, and arts and crafts exhibitions.
Go Canoeing at Kingsley Lake
Kingsley Lake, one of the oldest lakes in Florida, is a crucial attraction for locals and tourists who come here to enjoy a wide range of activities, including sunbathing, swimming, and fishing.
The lake is near an airstrip, making it easily accessible from other parts of the state. You will also find numerous dining options here, from regular fast food joints to restaurants offering a more refined dining experience.
A Final Word
Let's face it, buying a home today can be pretty daunting, given the ever-increasing property prices in major cities. However, if you don't mind settling in a developing suburb with a smaller population, you will find the USDA loan program very attractive.
These loans provide you with 100% home financing and enjoy remarkably low mortgage insurance than you otherwise would with an FHA or VA loan.
So, if you're looking to buy a home in Bradford County, Florida, apply for a USDA loan today to start reaping these benefits.