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USDA Loans in Collier County, Florida: Learn How to Obtain a Zero Down Mortgage

Are you drawn by the feeling of being surrounded by natural scenery, fresh air, and a strong sense of community? You may consider buying a home in an eligible rural or suburban area. And there’s no better way to finance the property than using a USDA zero-down home loan.

USDA is undeniably one of the least-known government-backed mortgage assistance programs. The United States Department of Agriculture rolls out the loans.

Since 1949, USDA, through its Single-Family Housing Programs, has enabled close to five million individuals and families to realize their homeownership dreams.

These mortgage programs help improve the quality of life and economy in rural parts of the country with no down payments and low-interest rates.

Here’s a thorough breakdown of how a USDA zero-down mortgage works in Collier County and how to get one:

How the Zero-Down USDA Loan Program Works

USDA home loans are government-backed and enable low to moderate-income borrowers to afford homes in suburban and rural parts of the country. Despite being established in 1991, they are still new in the mortgage market compared to government-backed loan programs like VA and FHA.

A USDA home loan can suit you if you want to own a home in an eligible suburban or rural area, but you can’t raise a down payment that most mortgage lenders require. You can apply for this type of mortgage when paying down your current student loan debt. In this case, the lender will use a lower percentage of this debt to calculate your DTI (debt-to-income) ratio, making it easier for you to qualify.

The USDA offers USDA Direct loans to deficient and low-income individuals and families. The two types of USDA loans include Single-Family Housing Direct Loan and Single-Family Housing Guaranteed Loan. On the other hand, Guaranteed Loans are originated by private mortgage lenders and target low to moderate-income borrowers.

Perks of Taking a Zero-Down USDA Loan

As one of the loans that boast a zero down payment requirement, USDA zero-down mortgages offer several perks. You can count on them to free up cash that can cater for loan closing costs, a much-needed emergency fund, or even moving costs. Here are five benefits of taking this type of loan:

Zero Percent Down Payment

The zero percent down payment requirement is perhaps the most significant advantage of a USDA mortgage. It gives you an excellent chance to save money when looking to buy a home in an eligible rural or suburban area.

You won’t have to pay the 3.5 percent down payment required by FHA lenders or the 20 percent down payment that conventional home loans demand. The no-money-down requirement shortens your home purchasing timeline by several years.

Lower-Rate Mortgage Insurance

Expect to pay a certain amount of mortgage insurance when taking a USDA zero-down mortgage. However, the premiums are lower when compared to those charged by FHA and conventional home loans. Also, USDA mortgage lenders charge an upfront and ongoing MIP (mortgage insurance premium) on the loans instead of a PMI (private mortgage insurance) that conventional homes demand.

Attractive Interest Rates

Thanks to the government backing on USDA zero-down home loans, you can enjoy competitive interest rates with a USDA mortgage. This type of backing reduces the origination risk mortgage lenders face when issuing loans. As a result, they offer low-interest mortgages without a down payment requirement that can lower your monthly loan payments and interest.

Suited for Numerous Property Types

USDA loans are perfect for buying properties such as single-family homes, fixer-uppers, condos, and manufactured homes. You can also take one to finance a land purchase, provided that you will use the land to build a new construction loan. The only types of properties you can’t finance with a USDA mortgage are vacation homes, investment properties, and multi-unit homes.

Assistance Programs and Gift Funds are Permitted

You can enroll in an assistance program to cover your down payment and closing costs when approved for a USDA home loan. The USDA-approved lender won’t require you to go through the rigorous process of finding, applying, and waiting to be approved for the assistance program. You may also use gift funds to cater to these expenses.

Loan Limits and Rates for a USDA Zero-Down Mortgage

One good thing about the USDA Guaranteed Loan Program is that it has no loan limits. However, there’s a natural limit on how much money you can borrow at a particular time. Even more, the lender will approve you for a loan amount you can afford after reviewing your finances.

You should note that the USDA property requirements have a square footage limit of 2,000 for homes that are up for USDA financing. In this case, you may opt for another home loan program if you want a home with lots of square footage than the recommended one.

Only USDA Direct Loans, which the US Department of Agriculture offers to very low-income borrowers, have loan limits. Though these limits vary by county, they stand at $285,000. Expect higher loan limits for Direct Loans in areas with a high cost of living.

USDA Loan Rates

USDA-approved mortgage lenders charge the same interest rates as VA loans. However, these rates are way lower than those charged by conventional and FHA mortgage lenders. And with the low-interest rates and low MIP, USDA mortgages are relatively affordable compared to FHA ones.

USDA Home Loan Property Requirements

The home you want to finance with a USDA home loan must be situated in an eligible suburban or rural area. It must also have basic amenities such as functioning plumbing and electricity, access to water, a wastewater system connection, and a safe structure. The fundamental property requirements that are specific to zero-down USDA loans include:

  • Minimum square footage of 400 square feet
  • Maximum square footage of 2,000
  • The home must have a residential character and be modest
  • Acreage that’s not large enough to undergo subdivision or used for commercial purposes

Passing a property appraisal is another requirement that the home should meet. And if the appraiser identifies any issues that contravene the property guidelines the USDA sets, the purchase won’t be closed. The good thing is that you will have a 15-day deadline to solve the issues and negotiate with the seller on an excellent purchase price.

If the seller chooses to make the repairs, it’s essential to review them and sign an agreement stating that the work was satisfactory. You can also negotiate the purchase if the fixes are unsatisfactory.

Is Private Mortgage Insurance (PMI) a Must?

Mortgage insurance is usually a requirement on home loans that require you to put less than 20 percent down payment, USDA loans included. Instead of private mortgage insurance (PMI), USDA loans have a mortgage insurance requirement that includes upfront and annual fees. These fees offer protection to the USDA-approved lenders and the USDA against potential losses when borrowers default on loans.

The MIP (mortgage insurance premiums) on USDA zero-down loans take a 0.35 percent annual fee and a 1 percent upfront guarantee fee. Lenders require you to pay these fees in 1/12 installments monthly, along with your mortgage payments. They will include the MIP in your monthly loan obligations to prevent you from paying it separately.

How MIP Compares to PMI (Private Mortgage Insurance)

Private mortgage insurance is one of the requirements for conventional home loans if you put down less than 20 percent of your approved loan amount. It is charged for the same reason mortgage insurance premium is billed on USDA loans, to protect lenders against loan default cases.

While you can request the lender cancel your PMI after reaching 20 percent home equity, the same can’t be done with a MIP. It’s also possible to remove the PMI if you reach 22 percent equity.

One advantage of MIP over PM is that the interest rate on the insurance premiums is relatively lower. Even more, USDA MIP lasts for the duration of your mortgage, notwithstanding your home equity or down payment amount.

Thanks to the low rates on MIP, your USDA loan monthly obligations will be more favorable than other types of home loans. The rates will also be based on the mortgage rate, the amount borrowed, and the home’s purchase price.

Young owners couple signing a contract for house

The USDA Loan Process: Applying, Getting Approved, and Closing

Expect the USDA loan process to be different from other mortgage types. Though most of the procedures are the same, the process comes with unique rules.

Before applying, review your finances, credit score, monthly budget, and outstanding debts. Since the approval process may take some time, you should have realistic expectations. Here’s how you can apply for a USDA zero-down home loan in Collier County:

Get Prequalified

In the prequalification stage, the USDA-certified mortgage lender will estimate the amount you’re able to borrow. The lender will review your financial information before sending you a pre-qualification that you can use to shop for residential properties that are within your budget. Real estate agents and sellers will count on your prequalification letter to determine whether you can finance a home with a loan.

Submit an Offer

After getting prequalified, consider looking for USDA-eligible property. Search for the property on the USDA eligibility map once you spot one you like. If it meets the USDA property guidelines, you can submit an offer drafted with the help of a real estate agent and lender.

Additional Verification, Appraisal, and Inspection

Your private mortgage lender will ask for additional documents to verify your eligibility before underwriting the loan. These documents may include tax forms, bank statements, and employment records. Respond promptly to avoid jeopardizing your loan closing timeline regardless of what they ask you to submit.

Scheduling an appraisal as well as inspection is also crucial. Your lender will find a USDA-approved appraiser to check whether the property’s asking price is within the price limits of similar properties in the area. As for inspection, you can hire an inspector with your real estate agent’s help to review the home’s structural integrity.

Wait for Approval from the USDA

The US Department of Agriculture must sign off on your home loan before closing. Find more information on when the USDA will review your mortgage on their rural development website.

Under the “Loan Status” option, a notice on the application batches currently under review will be given. Though the notice isn’t an exact measure, you can count on it to know if your loan application is queued for USDA review.

Schedule Appropriate Closing and Funding Dates

With your lender’s help, scheduling an ideal closing date (for signing the loan documents) is wise. The mortgage lender should also recommend a reasonable funding date (when the loan is disbursed and you become a homeowner). Once funding is complete, you can settle into the property and make it your own.

Top Fun Outdoor Activities to Consider in Collier County

Besides offering a cost-competitive environment with favorable tax structures, Collier County, FL, is filled with numerous recreational opportunities. From enjoying pristine natural wilderness ideal for outdoor adventures to soaking yourself in the white sandy beaches, there’s something for everyone in this county. Here are the top fun-filled activities you can engage in while living in Collier County:

Take Your Love for Marine Wildlife to Marco Island Dolphin

During the two-hour trip to Marco Island Dolphin, you can enjoy uninterrupted time viewing wildlife on the islands. The trip begins at the Goodland boating park, where you will board a boat and progresses into the waters to watch roseate spoonbills, pelicans, egrets, herons, ospreys, bald eagles, sea turtles, manatees, and dolphins.

Once you explore the 10,000 islands, you can do some fun shelling on an island beach. Don’t forget to carry your cameras, sunglasses, binoculars, hats, favorite drinks, and snacks to have a great time on the trip.

Cruise in Style and Comfort at the Naples Electric Moped Tour

Relying on the convenience and comfort of the Electric Mopeds, the tour will take you across the city of Naples. The highlights of this tour include gorgeous waterfront spots, all-budget shopping, and local dining hotspots.

The Electric Mopeds guarantee a stable and smooth ride, allowing you to sit safely and enjoy the sights. The tour is ideal for people of all ages and boasts a fully guided experience.

Visit the Corkscrew Regional Ecosystem Watershed (CREW)

CREW is a 60,000-acre watershed with exciting recreational opportunities for all ages. It offers close to 30 miles of picturesque hiking trails, with four trails open to the public. During the hikes, you enjoy the views of the maple-cypress swamp, sawgrass marsh, Popash Slough, oak hammocks, and pine Flatwoods.

Go Boating, Kayaking, and Angling at Rookery Bay

As one of the 29 protected reserves in the county, the Rookery Bay National Estuarine Research Reserves offers plenty of educational and recreational opportunities to explore. It stretches across 110,000 acres and features protected waters, uplands, and mangrove forests.

Rookery Bay is great for birdwatching, nature photography, angling, shelling, camping, boating, and kayaking. It is home to a 16,500-foot educational, training, and research facility (the Rookery Bay Environmental Learning Center). This facility features laboratories, an auditorium, classrooms, a two-story center equipped with picnic areas, nature trails, an art gallery, and interactive exhibits.

Immerse Yourself into the Naples Botanical Garden Experience

The Naples Botanical Garden boasts a beautiful collection of more than 1,000 plants grown on a 170-acre land. The garden showcases the plants and ecosystems that are native to one particular area. It comprises nine gardens, which are appealing to both kids and adults.

You can locate this beautiful botanical garden at Bayshore Drive, Naples, and expect an admission fee of $25 for adults and $10 for children. Daily tours at the Naples Botanical Garden start at 11 AM and run from November to April. Be sure to allocate more time to walk through the gardens for a satisfying experience.

The Bottom Line

A USDA zero-down loan is the perfect home financing solution if you can afford to make monthly mortgage payments but saving up for a down payment is a problem. With this type of loan, you enjoy low-interest rates, low mortgage insurance, and a chance to live on an eligible rural or suburban loan, as discussed in this guide—all the best findings and getting approved for a USDA home loan in Collier County.

With over 50 years of mortgage industry experience, we are here to help you achieve the American dream of owning a home. We strive to provide the best education before, during, and after you buy a home. Our advice is based on experience with Phil Ganz and Team closing over One billion dollars and helping countless families.

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