If you are financially constrained and cannot obtain a traditional mortgage, which typically requires a down payment, purchasing a home may still be within your reach, thanks to the United States Department of Agriculture mortgage program.
What is a USDA Loan?
The USDA Rural Development Guaranteed Housing Loan Program, or USDA Home Loan, is a 30-year fixed-rate mortgage assistance program offered by the U.S. Department of Agriculture to rural and suburban property owners.
USDA Loans are meant to improve rural America's quality of life and economy. Affordable, well-built housing is pivotal to this goal.
The USDA Home Loan program offers individuals and families an opportunity to purchase, build, or repair homes in what is considered rural America. A USDA home loan's main draw or advantage is that it requires zero down payment.
An eligible home buyer in Columbia County can access up to 100 percent financing for the total home value. Under certain qualifying circumstances, you can also use a USDA loan to refinance a current mortgage.
The U.S. Department of Agriculture guarantees and insures these loans, allowing the participating private lenders to provide benefits you would not access with traditional mortgage products. Eligibility for USDA loans is mainly based on income and will vary depending on the average median income of the area in question.
There are two types of USDA loans:
Direct Loans
Also referred to as the Section 502 Direct Loan Program, USDA Direct Loans help low and very low-income households get safe, decent, and sanitary housing in qualifying rural and some suburban areas. The base income limit for USDA direct loans is 50-80% of the area median income.
USDA Direct Loans offer payment assistance to improve your payment ability through a type of subsidy, which reduces your mortgage payment for a short time. The adjusted family income determines the amount of assistance. The USDA issues Direct Loans rather than private lenders.
Guaranteed Loans
The USDA Guaranteed Loan Program helps approved low, and moderate-income households own adequate, decent, and safe homes as their primary residence in eligible rural and suburban areas. The base income limit for USDA guaranteed loan is 115% of the area median income.
This program offers a 90% loan note guarantee to approved lenders. As such, if you qualify, you won't have to incur any down payment. This helps mitigate the risk of offering 100% mortgage loans to eligible home buyers.
Another critical difference between a direct and guaranteed USDA home loan is the party issuing the loan. The USDA issues direct loans while approved lenders issue guaranteed loans, which the USDA insures against default. Since the USDA is the lender for direct loans, the application process differs slightly from the guaranteed loans.
Who has Approved USDA Loan Lenders?
Approved lenders under the USDA Home Loan Program include:
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State housing agencies – any lenders approved by the United States Department of Housing and Urban Development for Federal Housing Mortgage issuance
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Issuers of Fannie Mae family mortgage loans
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Issuers of Freddie Mac family mortgage loans
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Issuers of Ginnie Mae mortgage-backed securities
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U.S. Veterans Administration (VA) as a mortgagee
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Farm Credit System institutions with lending authority
- Lenders participating in USDA Rural Development loan programs and Farm Service Agency guaranteed loan programs
The Benefits of USDA Loans
Since the USDA insures USDA loans against default, the approved lenders can offer benefits you cannot access with conventional home financing. Formulated to assist rural and suburban dwellers achieve the homeownership dream, USDA Loans are among the most advantageous loan initiatives if you seek to buy a home outside of densely populated areas. Below are some of the main benefits of a USDA Loan:
Zero Down Payment
The primary benefit of a USDA loan is zero down payment at closing. The loan offers 100% financing for the total home value for approved borrowers. Typically, a traditional mortgage requires you to incur a 5 to 20% down payment, while an FHA mortgage requires a 3.5% down payment. For low and moderate-income households, a down payment is often a significant obstacle to homeownership.
Many people have to save for years for a down payment. A USDA loan provides a viable homeownership opportunity if you cannot afford a down payment as a first-time homebuyer in Columbia County. The VA home loan program is the only other government-backed loan program that offers zero down payment options.
Competitive Interest Rates
USDA home loans also have competitive interest rates. The approved private lenders can provide some of the lowest interest rates on the loan market because of the USDA guarantee. Note that the actual interest rates will vary depending on the lender and several other factors, such as current market conditions and your credit profile.
The USDA does not set interest rates. Nonetheless, if you are an eligible borrower in Columbia County, a USDA loan will have lower interest rates than conventional and FHA loan programs.
Low Monthly Mortgage Insurance
Under a traditional mortgage, you must pay private mortgage insurance (PMI) if you cannot pay a 20% down payment. On the other hand, USDA loans do not require PMI. USDA loans use two fees instead – an upfront guarantee fee and an annual fee.
Once you close the mortgage, you pay the upfront guarantee fee, which is 1 percent of the total loan amount. The annual fee, 0.35 percent of your loan's current balance, is lumped with your monthly mortgage payment. Due to this model, a USDA loan incurs the lowest funding fees of any government-backed loan program.
Flexible Credit Requirements
With conventional mortgages, a good credit score (closer to 720) is often necessary to access lower interest rates, even though many lenders look for a score of 640. With USDA loans, there is no minimum credit score.
However, to be eligible to use the USDA's automatic underwriting system (Guaranteed Underwriting System), you need a credit score of at least 640. You can still qualify for a USDA loan with a lower credit score, but the underwriting process will be manual, which is more stringent. Also, having a higher credit score means you will receive lower interest rates.
Inclusivity
The property requirements for USDA loans mean millions of people are eligible for the loans. The Housing Assistance Council states that USDA loans are available in 97% of the United States landmass.
If you seek to purchase a home in Columbia County, Florida, there is a high chance that it falls within the USDA Home Loan footprint. While the purpose of the USDA home loan is to increase the population in rural areas, what the USDA considers a rural area is widely defined.
Accessible Even if You're Already a Homeowner
Using a USDA home loan even if you own a home is an overlooked benefit of this loan product. However, this benefit applies in specific circumstances. The only important consideration is that you cannot finance your other property with a previous USDA loan.
Eligibility Requirements for a USDA Loan
The USDA formulates its policies and eligibility requirements for the homebuyers and the property. The approved private lenders also implement their requirements on top of the USDA sets. Below is an overview of the USDA Home Loan eligibility requirements:
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You must be a U.S. citizen or lawful permanent resident
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You must have dependable income (usually two consecutive years)
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You must be willing to repay the loan – no late payments or collections one year before your application.
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You must have an acceptable debt ratio, which may vary depending on the lender and several other factors.
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Your adjusted annual income depending on family size, should not exceed 50-80% (for Direct Loans) or 115% (for Guaranteed Loans) of the area median income.
- The property you want to purchase must be in a qualified rural area.
Property Eligibility Requirements
While USDA loans are targeted toward rural area development, what the USDA defines as a rural area covers many suburban areas. According to the USDA, a rural area has a population of fewer than 35,000 people, has rural characteristics, and lacks mortgage credit access for low and moderate-income households.
Metropolitan areas are excluded from the USDA Home Loan Program. The boundary lines for property qualification change every year.
You can only use a USDA loan to buy a single-family home that will be your primary residence. This means vacation homes and income-producing properties do not qualify. Homes financed under the USDA Home Loan program generally do not exceed 2,000 square feet. You may purchase a home with acreage, so long as the size is typical for the area and you will not use it for income-producing purposes.
USDA Loan Income Limits and Maximum Loan Limits for Columbia County, Florida
Income limits for the USDA Loans are calculated based on household size and location of the property. The USDA considers the total annual income of every adult member of a household to set the income limit. Whether an adult household member is involved with the loan does not matter.
Ultimately, the adjusted annual income is considered, which considers acceptable deductions such as child care, medical expenses, and more. To qualify for a USDA Loan, your adjusted annual income should not exceed 115% of the Columbia County median income.
The base USDA loan income limits for Columbia County in 2022 is $103,500 for 1-4 member households and $136,600 for 5 to 8 member households. Starting March 9, 2022, the maximum USDA Direct Loan limit for Columbia County, Florida, is $336,500.
The Process of Obtaining a Zero Down Mortgage in Columbia County, Florida
While the USDA loan application process may vary depending on the homebuyer, the process typically involves the following steps:
Prequalifying with an Approved Lender
The first step is finding an approved USDA lender. Many traditional lenders offer USDA loans. It is advisable to look for a lender that specializes in USDA loans.
Prequalification is the next step after finding an approved lender. The lender determines your eligibility status during prequalification and estimates what you can afford. The lender will also determine any factors preventing you from qualifying for the USDA loan.
Providing Documents for Preapproval
During USDA loan preapproval, your actual financial situation is assessed. It is a more thorough process than prequalification and is crucial if you want to buy your dream home in Columbia County.
The lender will verify your income and financial information to determine the loan amount you can borrow based on your debt-to-income ratio. The following documents are necessary for preapproval:
- Photo Identification
- Bank statements
- Pay stubs
- W-2 forms and tax returns
- Social Security awards letter
Locating a Qualifying Home
You will enlist a real estate agent to start your property search in Columbia County. If possible, look for an agent who has previous USDA loan experience. The property must be located in an eligible rural or suburban area and be your primary residence. It also has to meet the property as mentioned above requirements.
Sign the Purchase Agreement
Once you find your dream home, you can make an offer to the seller. Once you reach a purchase agreement, the lender will conduct a USDA loan appraisal to ensure the home meets the USDA standards (adequate, modest, safe, and sanitary).
Loan Processing, Underwriting, and Closing
A mortgage underwriter will assess your application and documents and review your financial details for accuracy. USDA Loans utilize a two-pronged approval system. First, your lender underwrites your mortgage files based on USDA requirements.
Then the USDA underwrites your loan file, automatically or manually. Once the underwriters are satisfied, you can close on the home and provide you with a Clear to Close. You sign the necessary paperwork during the closing, finalize your USDA home loan, and move into your new home.
Exciting Outdoor Activities in Columbia County, Florida
Columbia County overflows with natural beauty, exciting events, and cultural treasures. If you utilize the USDA Home Loan program to achieve your dream of homeownership in Columbia County, there are numerous fun activities that you and your family can enjoy.
Explore the Big Shoals State Park
Throughout Columbia, nine state parks dot the land, the most exciting of which is probably Big Shoals State Park. This park on the banks of the Suwannee River boasts the biggest Whitewater rapids in Florida.
As such, it is the perfect spot to engage in various thrilling water sports such as Kayaking and canoeing as you soak up the sun. It is also a popular destination for hikers.
Big Shoals State Park features thirty miles of trails ideal for workouts, lazy walks, horse riding, bicycling, and more. You can also visit the limestone bluffs overlooking the Suwannee River to enjoy some stunningly beautiful views of Columbia County.
Big Shoals State Park also features other amenities, including picnic pavilions, nature rambles, camping grounds, and restrooms.
Check out The Deep Spring Farm
Deep Spring Farm in Alachua is a hidden gem that offers plenty of outdoor activities for the whole family. Deep Spring Farm features over 20 acres of organic farm gardens, woodlands, meadows, spring-fed ponds, and essential facilities. You can catch up with the farm owners for a tour of their organic farming projects, where you can help with the harvesting.
You can purchase fresh vegetables and fruits all year round. You can also enjoy water recreation in the Sunrise and Deep Spring Ponds at your leisure as you check out the biodiversity of the nature trails. Deep Spring Farm also has unique picnic locations characterized by oak tree-shaded waterfronts.
Fun at Alligator Lake Recreational Area
For a full day of outdoor fun, there is no better spot than Alligator Lake Recreational Area, which has been a popular location for decades. This destination is well known for its miles of biking and hiking trails through acres of wetlands and green space south of downtown Lake City. Cypress and oak trees draped in Spanish moss provide shade during your adventures.
You can view the swampy waters on the elevated boardwalks. You will enjoy the covered picnic pavilions, a sand volleyball court, and a massive shaded playground as a family. You can also time the annual Alligator Lake Spring fest held in April for family events, including guided nature walks and bird watching.
Visit the Falling Creek Falls
Measuring a mouth-watering 204 acres, Falling Creek Falls is one of the most popular tourist destinations in Columbia County and Florida. This spot is located north of Lake City and offers all the outdoor amenities you and your family will likely need, from picnic tables and playgrounds to restrooms and car parking.
If you seek to lose yourself in nature, this is the perfect spot as it has a certain peaceful tranquillity. You can stroll and enjoy the wildlife along the boardwalk trailhead towards the waterfall. You will also enjoy stunning foliage views, including beautiful forests of sweetgums, magnolias, and cypresses.
Cool Off at the Columbia County Aquatic Complex
Want to cool off on the hot Floridian summer day? You and your family can visit the Columbia County Aquatic Center. This complex boasts of a massive 50-meter pool with crystal clear water.
Columbia County Aquatic Complex offers many pool-related activities and amenities that all ages can enjoy. These include competitive swimming, swimming lessons, shaded poolside seating, and more. You can also host special events like birthday parties during the summer months.
Conclusion
If you want to achieve the dream of homeownership in Columbia County, Florida, and cannot access a conventional mortgage, the USDA Home Loan program is a viable path. USDA Loans offer significant benefits, including zero down payment, 100 percent financing, relatively low-interest rates, and looser credit requirements. If you are on a budget and are flexible about where you live, this government-backed mortgage product may be the right choice.
