(Mar 25, 2023)
Luckily, there’s an overlooked option, a USDA mortgage, that you can consider. This type of loan will be ideal if you prefer a rural or suburban setting over dense urban living. The US Department of Agriculture currently rolls it out through approved lenders.
The USDA zero-down mortgage program offers home loans to low and middle-income households who want to purchase residential properties in rural or suburban areas. You can access them in any part of the country (provided the USDA recognizes the area). Thanks to its zero down payment condition, the loan is affordable compared to other home loans.
Are you a Hometown Hero? Find out your eligibility for the Hometown Heroes Loan Program in Duval County, Florida.
Understanding USDA Zero-Down Home Loans
USDA home loans are government-backed loans for homebuyers with low and moderate-income looking to buy properties in various qualifying locations. Though they are widely categorized as rural development loans, you can use them to buy a property in a suburb.
The USDA backing on these loans enables the lenders to consider borrowers who can’t afford to take a conventional loan due to the high down payment or their low income. It also ensures that people living in underserved areas get to own homes and nurtures growth and development in suburban and rural communities.
One attractive feature of USDA loans is its 100 percent financing option. These loans can suit you when you have enough funds to pay a mortgage, but saving up for a down payment is an issue.
Why You Should Take a USDA Zero-Down Home Loan
The mortgage market is flooded with loan programs that promise a lot but deliver little. USDA mortgages come with attractive features to ease the frustration of getting a home loan. Here are some of the reasons to consider them when looking to purchase a property in a rural or suburban area:
Zero Down Payment
The zero down payment requirement on USDA loans makes them appealing to first-time homebuyers. It can help you save a lot up front in your homeownership journey. You may use the cost savings to cater for expenses such as moving costs and emergencies.
Suited for Different Property Types
With a USDA zero-down home loan, you can buy multiple properties, including manufactured homes, fixer-uppers, condos, and single-family homes. The mortgage can also help you secure land for a new construction home.
Vacation homes and investment properties are among the property types not covered under the loan program. The same applies to multi-unit properties, even if you want only to buy one unit.
Lower Interest Rates
It’s common for mortgage lenders to charge a high-interest rate to reduce the risk of originating a loan. USDA-approved lenders do the opposite since the US government backs the USDA loan program. Even with the zero-down payment requirement, you still enjoy lower interest rates, which translates to low interest and lower monthly payments.
Gift Funds and Down Payment Assistance are Allowed
You have the chance to use gift funds or an assistance program to settle the down payment (if you make one) or closing costs. With gift funds, the gift giver will offer you funds without expecting you to repay.
Either way, the USDA loan program doesn’t require you to find, apply, or get approved for down payment or closing cost assistance like conventional loan programs. Instead, the program allows you to take advantage of the available assistance programs.
Reduced Mortgage Insurance Premiums
Like other low-down mortgage programs, the USDA mortgage program comes with insurance requirements. Unlike FHA and conventional loans, the mortgage insurance premiums on USDA mortgages are quite low, saving you a lot in the long run. Expect to pay mortgage insurance premiums annually and an upfront Guarantee Fee.
Qualification for the Zero-Down USDA Mortgage
You can apply for a USDA zero-down home loan as a permanent resident, foreign national, or US citizen, provided you intend to occupy the property as your primary residence. However, you need to meet various loan requirements to become a homeowner. Here’s a breakdown of the primary things that are needed:
Qualifying Location
Since USDA loans aim to boost the development of suburban and rural areas, several location requirements apply. The suitable location should be classified as:
- A place with a total population of 20,000 or less that’s not part of a Metropolitan Statistical Area.
- An area with relatively few mortgage opportunities targeting borrowers with low-to-moderate income.
- A place with a population of 10,000 or below with a rural or open country feel.
Metropolitan counties and cities are ineligible for USDA home financing. It’s, therefore, essential to check the USDA home loan map to check if your area of choice adheres to the loan program guidelines.
Property Requirements
Your home must meet USDA’s property requirements and the qualifying location requirements. Property types qualify for financing include modular homes, townhomes, condos, and single-family dwellings. The property should meet the following requirements to be considered:
- Be your primary residence (not an investment property or second home)
- Have minimum square footage of 400 and maximum square footage of 2,000
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Pass USDA’s property appraisal guidelines
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Be a safe and secure structure with adequate wastewater systems, access to water, functioning electricity and plumbing, vehicle and pedestrian access, hot water, heat, not less than one bathroom and toilet, and satisfying structural integrity
- Have acreage that is not large enough to be converted into a commercial property or subdivided
USDA’s Property Appraisals
The role of an appraiser is to review the property and ensure that it meets USDA’s property guidelines. It also involves recommending repairs before the mortgage closes if any areas in the property are flagged as incompliant. Your private mortgage lender is supposed to enlist the services of a USDA-approved appraiser once the seller agrees to your purchase offer.
The appraisal will help determine whether the home’s value is comparable to the fair market value of homes nearby. Your mortgage lender won’t approve the mortgage if the seller’s asking price is more than the property’s appraised value. For the loan process to proceed, the price needs to be lowered, or you must pay the price difference before closing.
Loan Limits
One good thing with most USDA loans is that the loan limits are inexistent. These limits only apply to USDA Direct Loans, which make up a small fraction of all USDA-backed mortgages. Under the USDA Direct Loan program, expect a maximum loan limit of $970,800 if the property is situated in a high-cost area or $336,500 for properties in most parts of the country,
Loan limits on USDA mortgages depend on the loan program you’re enrolled in. The USDA Guaranteed Loan program has no limits and requires you to apply for a loan through a lender. On the other hand, the Direct Loan program has loan limits and offers loans through the USDA instead of a mortgage lender.
USDA Guaranteed loans can suit you if you are a home buyer with low-to-moderate income. USDA Direct loans target homebuyers with very low income that ranges from 50 to 80 percent of the area’s median income. Your total income should also be less than 115 percent of the median income in the area the property is located.
Private Mortgage Insurance (PMI)
Expect to pay an annual fee (mortgage insurance) of 0.35 percent of your current loan amount when taking out a zero percent down USDA home loan. The mortgage insurance premiums will drop each year you pay down the loan.
This annual fee is equivalent to the private mortgage insurance requirement with conventional loans. It serves as a form of protection for the USDA and lenders against potential losses.
How Mortgage Insurance in Zero-Down USDA Loans Works
Mortgage insurance in USDA loans takes the form of an annual 0.35 percent fee and a one-time upfront guarantee fee. Your private mortgage lender will require you to pay the annual fee in 1/12 installments, together with the mortgage payment. Since the mortgage insurance premiums are included in your mortgage payments, you won’t have to pay them separately.
The lender can even allow you to include the one percent upfront amount in your loan amount. It’s possible to do this even when your final loan amount exceeds the appraised value.
Mortgage insurance premium rates charged on USDA loans are pretty lower than PMI rates on conventional loans and mortgage insurance rates on FHA loans. However, you have to pay the premiums throughout the loan.
How USDA Mortgage Insurance Differs from Private Mortgage Insurance
Private mortgage insurance (PMI) is usually required if you make a down payment of less than 20 percent of the loan amount on a conventional loan. It is charged for the same reason mortgage insurance is charged on USDA home loans: to protect the lenders when you default on the loan.
You can request your lender cancel the PMI after making enough monthly mortgage payments to attain 20 percent equity in your home. The lender will also remove the PMI requirement once you reach 22 percent home equity.
Reaching a certain percentage of equity on your home won’t exempt you from paying mortgage insurance premiums under the USDA loan program. This is because the premiums are paid throughout the loan. The good thing is that the interest rate on the premiums is way lower than those of PMI.
Income limits
USDA-approved lenders pay attention to your income before approving you for a USDA zero-down loan. This means that your gross income should fall at or be below certain limits to qualify.
You need an adjustable income of 115 percent or lower of your area’s median income. Even more, mortgage lenders consider your qualifying income, eligibility income, and adjusted eligibility income when verifying your income eligibility.
Your qualifying income helps determine your ability to repay the mortgage, while the eligibility income (total household income) helps determine your eligibility for the mortgage program. Consequently, your adjusted eligibility income is the income that remains when deductions for childcare expenses or dependent family members are made.
Credit Score Requirements
Though most mortgage lenders have a minimum credit score requirement of 620 for USDA mortgages, the USDA doesn’t consider credit score an eligibility factor. In this case, you can be approved for the loan with a low credit score, provided the lender verifies your ability to repay it.
Your credit history plays a significant role when lenders determine your creditworthiness. If you have a history of making payments on time and have a low credit utilization ratio, you stand a chance of qualifying for the loan.
Improving Your Credit Score for the Zero-Down Loan
Consider disputing inaccurate information on your credit report and paying off pending balances to boost your credit score. Maintaining a savings account can also afford better loan terms and offers when looking for a USDA loan.
Top Outdoor Activities to Consider in Duval County, Florida
Duval County is a hub of fun outdoor activities in the northeastern part of the sunshine state. Its county seat, Jacksonville, FL, is home to many recreational facilities you may want to visit. With that said, here are the best outdoor activities to engage in while living in Duval County:
Take a Trip to the Nature Centers
Tree Hill Nature Center and Amelia Island State Park are among the nature centers Duval County has to offer. Both boast vast acres of natural scenery and venues for exciting recreational activities.
Tree Hill Nature Center was established as an urban wilderness preserve with over 50 acres of wetland and hilltop areas to preserve environmentally-sensitive plants and animals. It features wildlife viewing areas, nature trails, a gift shop, a meeting room, wildflower gardens, a learning laboratory, interactive exhibits, and an indoor nature center.
Amelia Island State Park is a state park with over 200 acres of maritime forests, salt marshes, and beaches. It’s an excellent place for fishing, kayaking, collecting shells, and bird-watching. You can also enjoy horseback riding tours at one of the beaches.
Explore the Jacksonville Arboretum
If you are looking for a 120-acre urban woodland filled with trails for exploration, consider the Jacksonville Arboretum. The trail descends to the foot of a lake, heading up on a gentle slope. While walking along the trails, you enjoy a great view of distinct ecological habitats.
Take Your Love for Endangered Wildlife to Wildlife Sanctuaries
Catty Shack Ranch Wildlife Sanctuary and Birds Emergency Aid and Kare Sanctuary (BEAKS) are among the wildlife sanctuaries you can visit in Duval County. The Catty Shack Ranch Wildlife Sanctuary, to be specific, is run by a non-profit organization that caters to endangered big cats and spreads awareness on wildlife protection. On the other hand, BEAKS is a wildlife sanctuary that rehabilitates and treats injured birds. Besides being home to over 400 birds, the sanctuary offers education programs on wildlife protection.
Walk Along the Northbank and Southbank Riverwalks
The Northbank Riverwalk offers spectacular views of the St. John’s River. It also hosts races, New Year’s Eve fireworks, and the Light Boat Parade (a festival marked by boat decorations).
You may also walk through the Southbank Riverwalk, a boardwalk bordering St. John’s River. The riverwalk boasts on-street parking, bike lanes, enhanced landscaping, and enhanced sidewalks.
Take Your Passion for History to the Cummer Museum of Art and Gardens
Established in 1958, the Cummer Museum of Art and Gardens is a fine arts museum with over 5,000 artworks, primarily centered on American and European paintings and Meissen porcelain. The surrounding gardens offer a picturesque view of St. John’s River.
Final Thoughts
All in all, USDA loans offer plenty of advantages if you meet the income requirements in the qualifying locations. Besides the zero down payment requirement and low mortgage insurance rates, they make homeownership affordable if you fancy buying a home in a rural or suburban area. Consider shopping around to see what USDA-approved lenders offer to get the most favorable terms possible.
(Mar 25, 2023)
