(Mar 25, 2023)
USDA loans were designed to help borrowers like you afford a home in eligible rural and suburban areas, thanks to their flexible loan terms. These loans come with a US Department of Agriculture backing and are appealing to households with low to moderate-income.
They are designed to improve rural areas in terms of housing development. If you plan to use a USDA zero-down mortgage to finance a home in Hardee County, Florida, here’s everything you need to know to improve your chances of getting approved.
Are you a Hometown Hero? Find out your eligibility for the Hometown Heroes Loan Program in Hardee County, Florida.
What are USDA Loans?
USDA mortgages are home loans backed by the government to enable low and moderate-income home buyers to afford homes in rural and suburban areas. They boast flexible loan terms, zero down payment requirements, and competitive interest rates. Though they may have started gaining a lot of traction recently, these loans have been around for a while.
One misconception about USDA mortgages is that they are untested since they come with a zero down payment requirement. The truth is that they undergo vigorous USDA approval before being disbursed to borrowers.
As you shop for USDA rural housing loans, you’ll encounter two types - SIngle-Family Housing Guaranteed Loan and Single-Family Housing Direct Loan. USDA Guaranteed Loans are the most common in the mortgage market since they target low to moderate-income homebuyers. On the other hand, USDA Direct Loans are not standard and are offered only by the USDA to low-income borrowers.
Perks of Getting a USDA Mortgage
As one of the few home loan products that don’t have a down payment requirement, USDA loans offer several benefits. You can count on the loan when looking to save up cash for your moving expenses, closing costs, or even an emergency. Here’s a breakdown of the pros of this type of mortgage product:
Competitive Interest Rates
The USDA loan program boasts government backing that allows lenders to set relatively low rates. You can still get qualified and enjoy low rates without putting any money down. And the good thing about these low rates is that they reduce the monthly payments and interest paid throughout your loan.
Zero Down Payment Required
The zero down payment on USDA mortgages is perhaps the most significant benefit of taking the loan. Raising a down payment can be pretty challenging if your income is low. But with this type of home loan, you won’t have to worry about raising one, and it will take a shorter time to buy your dream home.
Lower Mortgage Insurance Rates
Like other loans with low down payments, USDA home loans require you to pay mortgage insurance rates. The mortgage insurance requirement differs from the private mortgage insurance charged on conventional loans. It’s because it comprises an annual mortgage insurance premium and an upfront guarantee fee.
The catch is that you can choose to pay these fees in 12-month installments. These fees are also lower than premiums paid on other home loans.
Suited for Multiple Property Types
A USDA home loan can come in handy to finance the purchase of different properties. The eligible properties include single-family homes, fixer-uppers, manufactured homes, and condos.
You can also count the mortgage to purchase a piece of land meant for building a new construction home. Ineligible property types include multi-unit properties, vacation homes, and investment properties.
Assistance Programs and Gift Funds are Allowed
The USDA housing program is open to assistance programs and gift funds. In this case, you can use these financial incentives to cover your loan costs when approved for a USDA loan. There won’t be any strict measures for finding, applying, and qualifying for the assistance programs.
USDA Loan Requirements
USDA loans are available to US citizens, permanent residents, and foreign nationals who meet various loan requirements. You can also apply for the loan if you were locked out of conventional home loans due to your low income.
Like other mortgage programs, the borrowing criteria for the USDA mortgage program encompasses requirements such as income, credit score, and debt-to-income. Also, you must purchase the property in a qualifying location and meet the USDA loan income limits. Here’s a detailed breakdown of each loan requirement:
Qualifying Location
One of the long-term goals of the USDA is to facilitate rural development across the country. The USDA achieves this goal by backing loans in eligible rural and suburban areas that require more homeownership opportunities. The qualifying location must meet the following requirements:
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An area with relatively low home loan opportunities targeting borrowers with low and moderate-income
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A place with a total population not more than 20,000 and isn’t situated in a Metropolitan Statistical Area
- Areas with a maximum population of 10,000 situated with a rural character or an open country setting
Income Limits
Income is a huge factor when USDA-approved lenders consider you for a home loan. Lenders consider your qualifying income, adjusted eligibility income, and eligibility income to determine your income eligibility for a USDA mortgage.
Eligibility income encompasses income earned by all adult household members and is used to check whether you are within the area-specific income limits. Your qualifying income includes commission, bonuses, or overtime earned over a period of time. Lenders use this type of income to determine if your finances can cover the monthly mortgage payments.
Lastly, your adjusted eligibility income is the gross household income remaining after deductions, such as childcare and medical expenses. It is usually a starting point for lenders to determine your eligibility for a USDA loan.
Loan Term
USDA loans come with a 30-year, fixed-rate term making them convenient if you are looking for a longer-term loan. They might not suit you if you shop for an adjustable-rate mortgage or 15-year home loan.
The good thing is that you can finance the loan in a few years to your desired terms. However, you must pay origination and closing fees when refinancing the mortgage.
Credit Score
A minimum credit score of 620 can improve your chances of qualifying for a USDA mortgage. Though the USDA doesn’t set the credit score guidelines, it allows lenders to set a convenient score range (usually from 620 to 640).
Depending on the loan lender, you may enjoy some flexibility in credit score requirements. You may also get qualified with a low credit score, provided your finances and income stream put you in a position to afford the monthly loan payments.
Debt-to-Income Ratio (DTI)
USDA-approved mortgage lenders base your debt-to-income ratio on the sum of your monthly debts divided by your total monthly income. They require you to have a DTI of up to 41 percent to improve your chances of qualifying for a USDA mortgage. However, with USDA’s automated underwriting system approval, the DTI requirement won’t be necessary to get you pre-qualified.
USDA Loan Limits
Most USDA loans don’t have loan limits unless they are USDA Direct Loans, which make up a small part of all USDA mortgages. For the Direct Loans, expect a loan limit of up to $336,500 nationwide and $970,800 in locations with a high cost of living.
Loan limits apply to USDA Direct Loans since they target homebuyers with meager incomes. Your income has to be 50 to 80 percent of the eligible area’s median income to be considered for this type of loan.
Do USDA Zero-Down Loans Require PMI?
Mortgage insurance is required for home loans with a low down payment. Mortgage insurance is the equivalent of PMI on conventional home loans. Expect to pay mortgage insurance in the form of an annual fee and upfront fee when taking a USDA zero-down home loan.
The USDA annual mortgage insurance fee protects participating lenders against potential losses when issuing loans. This is because cases of defaults and delinquency are usually common with government-backed loans.
Your lender will charge you an upfront guarantee fee of one percent on the mortgage to cover mortgage insurance. They will also ask you to pay a 0.35 percent mortgage insurance fee in 12-month installments, accompanied by your monthly loan payments.
Property Requirements for USDA Loans
Only USDA-eligible properties are considered for financing. This means that the property should be located in a qualifying location and meet standard requirements such as adequate access to wastewater systems and water, a safe structure, and functioning electricity and plumbing. The USDA-specific requirements that the property should meet include:
- At least 400 square feet in size
- Not more than 2,000 square feet
- Be residential and modest
- Land that is not large enough to be converted into a commercial property or be subdivided
Your lender should schedule an appraisal for the home you intend to finance with a USDA loan. The loan can proceed to the late closing stages if the home passes appraisal. If not, you have less than 15 days to fix the issues or negotiate with the lender the responsibility of making the repairs before the closing date.
Applying, Getting Approved, and Closing on a USDA Loan
USDA loans follow a particular process from application to closing. Though most steps in the loan process are similar to other loan types, the application can take longer as you await USDA approval. Either way, here are the steps of applying, getting approved, and closing on a USDA mortgage:
Know Your Financial Status
One mistake most borrowers make is proceeding with the USDA loan process without reviewing their finances. Checking your monthly expenses and credit score can help you determine whether you are in a position to afford the monthly loan payments.
Pre-qualification
As with other loans, a pre-qualification helps estimate the maximum mortgage amount you can borrow. Though it’s not a guarantee that a participating lender will pre-qualify you for the loan, you have to provide your financial documents when asked to do so.
Once you pass this stage, the lender will send you a pre-qualification letter that can help you shop around for homes. The letter can improve your chances of getting a home within your budget since it suggests to sellers and realtors that you can afford a mortgage to finance the home purchase.
Make a Competitive Offer
The seller will only consider you a prospective homebuyer when you make a competitive offer. So, it’s essential to draft one to improve your chances of closing on the purchase. You may also turn to a real estate agent experienced in USDA mortgages for help crafting the offer.
Appraisal and Inspection
If the seller accepts your price offer, you can present it to your lender and have them schedule an appraisal for the home. As an unbiased professional opinion on the home’s value, the appraisal will determine whether the home meets USDA’s property guidelines. You’ll be responsible for the home inspection, including pest inspection.
Wait for USDA Approval
The next step is to wait for USDA approval since the USDA has to sign off on all mortgages it backs. You can check the status of the USDA review on the rural development website.
Closing and Funding
Once the USDA signs off on your loan, you can agree with your mortgage lender on an appropriate closing date. You’ll be required to sign certain loan documents during the closing date. Two days after this date passes (the funding date), the lender will transfer the money to you, allowing you to go ahead with the home purchase.
What to Do in Hardee County, Florida
Hardee County is located in the Florida Heartland and offers excellent outdoor recreational opportunities for adventure seekers. From hiking and wildlife viewing to paddling and fishing, you can never run out of things to do in this county. Consider the following outdoor activities during your visit to Hardee County, Florida:
Hiking at Paynes Creek Historic State Park
Paynes Creek Historic State Park is a scenic state park that boasts exciting natural scenery. You can enjoy hiking along trails strategically positioned in the park’s natural areas.
The state park is also an excellent destination for group fishing, paddling, picnicking, and wildlife viewing. There are also plenty of memorable opportunities for camping, birding, and bicycling that you can explore.
Wildlife Viewing at Hardee County Wildlife Refuge
If you fancy wildlife viewing during your stay in Hardee County, visit Hardee County Wildlife Refuge. Nested in Pioneer Park, this refuge cares for rehabilitated and rescued animals. Most of the animals hosted in the refuge are native to the Sunshine State,
Hardee County Wildlife Refuge features a high boardwalk you can walk through while observing the protected animals. You also learn about their backgrounds and why the refuge adopted them. All animals in the refuge get high-quality care.
Find Adventure on the Peace River
A short stroll from Wauchula city center will lead you to the banks of the picturesque Peace River. You may look for fossils, snorkel at the river, or engage in wadding at the river shore. Other recreational activities to do on the river include picnicking and fishing.
Peace River is a fun-filled spot for water excursions, paddling, canoeing, and kayaking. These water sports are guided by certified instructors and can run for as long as possible. While cruising on the water, you’ll enjoy views of different bird species and alligators.
Fishing at Hardees Lakes County Park
With 4 lakes suited for fishing, Hardees Lakes County Park is an excellent spot for fishing enthusiasts. You can find several boat ramps along the lakes and a spacious campground for fun-filled adventures. The park also features walking and bike trails if you want something more energy-filled.
Enjoy the Solomon’s Castle Experience
Solomon’s Castle is a magnificent building hidden in the lush woodlands of Florida. It features a workshop, galleries, and the home of famed artist Howard Solomon.
You can take a guided tour of Solomon’s Castle and rest under the surrounding oaks. There is also a canopy of trees around the property, with spaces convenient for meditative walking.
Final Thoughts
USDA loans are convenient if you meet the loan requirements discussed in this guide. Thanks to the low mortgage insurance rates and zero down payment requirement, they are way cheaper compared to other government-backed loans. Good luck applying, getting qualified and financing your dream home with a USDA home loan.
(Mar 25, 2023)
