USDA loans are designed for everyday Americans who earn below 115% of the Area Medium Income (AMI) and would otherwise not qualify for FHA or conventional loans. If this sounds like you, keep reading to learn how you can obtain this zero-down mortgage.
Are you a Hometown Hero? Find out your eligibility for the Hometown Heroes Loan Program in Dixie County, Florida.
USDA Loans: A Quick Overview
USDA loans are government-backed mortgages that target low to medium-income borrowers across the United States. The USDA-approved lenders funded the loans and guaranteed them by the U.S. Department of Agriculture. These loans have zero down payment requirement, below-market interest rates, and lower mortgage insurance costs, making them some of the most affordable mortgage products in the market.
Similarly, USDA loans are only used to finance specific property types in rural and suburban areas. Borrowers must meet USDA loan requirements before they are eligible for financing. We have covered this and more below.
Who Qualifies for USDA Loans in Dixie County?
If you're interested in buying a residential home using the USDA loan program, you must wonder what the loan requirements are. USDA has some conditions that borrowers must meet before their loan is approved. To better understand these eligibility criteria, we will explore the five essential requirements, namely:
Income Limit Requirements
USDA-approved lenders evaluate three types of income to verify the borrowers' income eligibility. These income types are – qualifying income, eligibility income, and adjusted eligibility income. Qualifying income is the borrower's annual income, often used to gauge the repayment ability. Eligibility income refers to the total household income, including overtime, commission, and the dependent children/relative income. Some expenses such as childcare and medical expenses are deducted when calculating the adjusted eligibility income.
The standard income limit for USDA loans in 2022 is $103,500 for 1-4 member households and $136,600 for 5-8 member households. Generally, only borrowers whose adjustable household income falls below 115% of the AMI are eligible for USDA loans.
Credit Score Requirements
Most lenders evaluate the creditworthiness of their borrowers before approving their loan applications. This creditworthiness is presented in what is called credit scores. The higher the credit score (often above 680), the higher the creditworthiness and the less risk of defaulting. Some factors lenders pay keen attention to when calculating credit score are payment history, length of credit history, amounts owed, presence of new credit, etc.
USDA doesn't specify a credit score limit, but most lenders prefer borrowers with a credit score of 640 and above. However, some lenders may welcome borrowers with a slightly lower credit score provided they meet the other requirements and prove their willingness to make monthly payments on the loan.
As noted earlier, USDA loans can only be used to finance homes in rural and suburban areas. Therefore, you must ensure the property you want to buy is located in a residential hub that meets the USDA definition of a rural or suburban area. Ideally, the home should be situated in an area with a population of not more than 35,000 people. Similarly, it should be located in an open country or an area not designated as Metropolitan Statistical Area (MSA). Luckily, most residential areas in Dixie County meet these requirements, plus you can always consult your lender before making any commitments.
Besides the location requirements, there are also some property requirements that borrowers must satisfy. For instance, USDA loans can only finance primary residential homes, not investment properties. Similarly, only single-unit homes are eligible for financing, not multi-family properties. Below are the other USDA loan conditions the property must meet:
It should be a modest home with access to adequate water and a wastewater system.
The property should be more than 400 square feet but less than 2,000 square feet.
The structure should be solid and safe with functional plumbing and electrical systems. There should also be a street, walkway, or driveway for convenient access to the property.
- The home must pass USDA appraisal.
Debt-to-income (DTI) ratio measures the borrowers' expenses with respect to their income. Borrowers with a higher DTI, often above 50%, spend more than they earn. Here, spending is the total money allocated to debt payments, bills, and other financial obligations. Most lenders approve borrowers for USDA loans if they have a DTI of 41% and below.
A higher DTI translates to an increased risk of default. However, some lenders may approve borrowers with a higher DTI only if they have a steady income and an excellent credit score. If you don't qualify for a USDA loan due to a high debt-to-income ratio, you may want to repay some outstanding debts first or/and find an extra income source.
How to Obtain a Zero Down USDA Loan
Like any other mortgage product, the USDA loan application follows a step-by-step procedure, i.e., from loan pre-qualification to closing. To boost the odds of qualifying for the loan, it's essential to understand the details of each application step. Here's how you can obtain a USDA loan in Dixie County, FL.
Prequalify with a USDA-approved Lender
Once you're ready to apply for a USDA loan, the first step is to find a USDA-approved lender and prequalify the loan. This means checking if you meet the basic eligibility requirements for the loan. The lender often asks for a brief income review and a basic credit check. After prequalifying for the loan, the next step is preapproval.
USDA Loan Preapproval
Unlike pre-qualification, preapproval is a thorough and detailed-oriented process, where lenders check your income and credit score to determine your eligibility for the loan. The lender will ask to verify your household income using personal and financial documentation such as pay stubs, photo ID, bank statements, W-2s, etc. This process gives you a clear picture of what you can afford.
If you pass the loan preapproval stage, you are awarded a certificate of preapproval that will be pretty helpful during house hunting. It's worth noting that getting preapproved for a USDA loan doesn't mean your loan application will automatically proceed to close.
After getting the green light to find a home for sale, you should proceed to identify the best homes in USDA-qualifying locations. Your preapproval letter will make your house-hunting mission a lot easier. The letter shows the seller that you are a serious buyer who can proceed to close.
Before making any commitments, ensure the home meets all the USDA-property requirements and stands a chance of passing the appraisal. If you aren't sure of these details, consider working with an experienced agent. You can also consult your lender to help choose a property that's eligible for financing.
After selecting a property of choice, you'll proceed to sign a purchase agreement. The latter is a document that puts you and the seller under contract. It also specifies the conditions for buying the property and how the payments will be made. After signing the purchase agreement, the application will proceed to the underwriting phase. During this stage, your loan application documents are further evaluated to ensure they are legitimate and accurate.
USDA loan underwriting follows two approval stages, one by the lender and the other by USDA. If there's any missing piece with your application, either or both the lender and USDA will request further information. This underwriting process takes a bit longer than with conventional loans.
Final Approval and Closing
Suppose your USDA loan application passes the underwriting stage, it will proceed to the final approval. The USDA is often the last to make this confirmation, and it may take up to a week before the lender receives the documents to proceed with a loan closing. During closing, you want to work with your agent to ensure you don't skip the essentials. It's necessary to have all the paperwork done and ensure every participating party has appended their signatures.
USDA Mortgage Insurance Premium
USDA loans attract a mortgage insurance fee, like any other mortgage product where the down payment is less than 20% of the loan amount. This fee is called a mortgage insurance premium (MIP). It is paid by the borrower to help guarantee the property in case of default or if the borrower passes away and the loan payments stop due to financial difficulties.
Lenders charge MIP as a 1% fixed fee, and an annual 0.35% paid monthly installments throughout the loan duration. The fixed fee can be paid upfront or rolled into home finance. Compared to premium mortgage insurance, that's only payable until the borrower has built 20% equity in their home, MIP is quite affordable.
Benefits of USDA Loans
USDA loans are some government-sponsored mortgage programs that offer several benefits for everyday Americans. Besides being accessible for most wannabe homeowners, this loan vehicle has several other advantages. We have rounded them up below.
The Loan is Relatively Cheap
USDA loans offer 100% financing, meaning you don't need to put any money down. Unlike FHA or conventional mortgages, where the minimum down payment is 3-3.5%, USDA loans are convenient. The interest rates are also below the market rates, meaning you'll pay less in monthly installments. Not to mention that the mortgage insurance premium is relatively cheaper than the PMI common with other loan mortgage programs.
You Can Buy Different Property Types
With USDA loans, you are limited to buying a single-unit property, but you can choose from different models or designs, whichever suits your preferences. For instance, you can buy a condo, townhouse, manufactured home, or a fixer-upper. You can also take a USDA loan to purchase land for residential home construction. This flexibility makes the loan a versatile mortgage that caters to the unique needs of different borrowers.
The Credit Requirements are Flexible
Depending on your financial standing, you may easily qualify for a USDA loan, even if you don't qualify for conventional mortgage products. The reason is that the USDA doesn't specify the credit limit they expect from borrowers. Similarly, some lenders are more lenient or good at risk management than others. So with proper research, you will always find a better deal.
You Can Use Some Closing Assistance
Closing assistance programs are often available for homebuyers who cannot raise the upfront costs needed during closing. Such charges include closing fees (2-5% of the loan amount), mortgage insurance, appraisal, attorney's fees, etc. USDA loans allow borrowers to use gift money, grants, and seller concessions to cover the closing fees. If you need help paying these fees, always explore as many closing assistance programs as possible.
5 Fun Outdoor Activities to Enjoy in Dixie County, FL
Located in the northern part of Florida, Dixie County is an ideal residential hub with access to social amenities, rivers, springs, and many outdoor fun activities. Besides the string of recreational parks and hiking trails, Dixie County has a balanced habitat of flora & fauna that every nature lover would find irresistible. Below are the five outdoor activities you'll enjoy as a resident of this county.
Kayak the Extensive Waterways
One of the fun outdoor activities you will enjoy in Dixie County is kayaking the Suwannee River, which flows beside Dixie County before emptying into the Gulf of Mexico. The county has three sides boarded by water – Suwannee River, Steinhatchee River, and the Gulf of Mexico. This means there are plenty of fun on-water activities you can explore.
If you would love a long-distance kayak experience, there are guides ready to keep you company. Popular paddling trails include the Steinhatchee River Trail, the Suwannee River Trail, and the Gulf Coast Paddling Trail. Not to mention that the Suwannee River has overnight stops every 10 miles if you plan an overnight kayak trip.
Bike or Walk the North Florida Trails
Dixie County has numerous walking and biking trails that allow you to explore the broader North Florida. Most of these trails are abandoned rail lines that have now been turned into adventurous trails with restrooms and water fountains at specific sections. Depending on what you want, you can choose the shorter or long routes or those located along the Suwannee River or the Suwannee National Wildlife Refuge.
Camp Along the Suwannee River
One popular campsite along the Suwannee River is the Bend RV Park, which features several waterfront lots in a calm and serene setting. You have the convenience of docking your kayak, boat, or canoe just outside your campsite, plus there are trails for walking and biking if you'd love a break from the waters.
There's also the Yellow Jacket RV Resort, which welcomes all types of campers. The resort is just off the Suwannee River in Old Town and offers natural views of the river and its environs. With access to nearby public beaches, native springs, and boat rentals, staying along this river is a one-in-a-lifetime experience.
Explore the Underwater Archeological Preserve
Dixie County has a lot to offer if you are a diver or love springs and underwater caves. You can visit the Dixie Artificial Reefs for a diving expedition or if you are an advanced diver, explore the "City of Hawkinsville," a sunken steamboat that's now one of Florida's Underwater Archaeological Preserves. This sunken steamboat was listed as a historic place in 2001, and it attracts thousands of expert divers from all across the Country.
Go Fishing in the Gulf Waters
Some of the best fishing spots in the whole of Florida are found in Dixie County. The Suwannee River, in particular, has several creeks, artificial reefs, and inlets where you can catch some spotted seatrout, red drum, and sheepshead, to mention a few. If you are interested, you can explore the fishing communities along the Gulf waters with experienced fishing captains.
On your way to the mouth of the Suwannee River are other popular fishing spots, oyster bars, hotels, and campgrounds where you can fish, do some birding, or watch the sunset. An adventure on these waters is a great way to spend your lazy weekends while catching your favorite fish.
Dixie County, FL, is a perfect place to call home if you would love to live in a peaceful area with welcoming locals, beautiful surroundings, and lots of fun outdoor activities. Finding the perfect USDA-approved home is more manageable, provided you have looked in the right places. You want to consider working with a local agent who will guide you through house hunting and negotiation. But first, get preapproved for a USDA loan today to begin your homeownership journey the convenient way.