The USDA helps families in rural areas achieve their homeownership goals with its affordable housing programs. It targets low to moderate-income families with different types of home loans.
The catch is that USDA home loans have a zero down payment requirement. They boast a flexible loan process, competitive interest rates, and low mortgage insurance. Here’s how to get this zero-down mortgage when living in Holmes County, Florida.
Are you a Hometown Hero? Find out your eligibility for the Hometown Heroes Loan Program in Holmes County, Florida.
USDA Home Loans Dissected
USDA home loans are competitively-priced mortgage options that make homeownership affordable if you are a low-income person living in an eligible rural or suburban area. They come with government backing (the US Department of Agriculture) like the Department of Veterans Affairs officially backs VA loans.
Thanks to the USDA backing, the loans boast lower interest rates than conventional mortgages. You can even count on them to purchase a residential property without making any down payment, a loan requirement for most private mortgage lenders. However, you’ll have to pay for the loan closing costs.
Understanding the different loan programs administered by the USDA will help you navigate the loan process without difficulties. These mortgage programs include the Direct Loan, Guaranteed Loan, and Home Improvement Loan.
Direct Loans (offered by the USDA) target low-income homebuyers, while Guaranteed Loans (offered by private lenders) target low to moderate-income homebuyers. You may take a USDA home improvement loan to make improvements or repairs on your home.
What Perks Do USDA Zero-Down Mortgages Offer?
Since they require no down payment, USDA loans can be an attractive home financing solution. Once you qualify, they can help free up cash for your savings, moving expenses, or closing costs. Here are five benefits of taking this type of mortgage:
Zero Percent Down Payment Requirement
One factor that makes conventional mortgages unattractive to low-income homebuyers is the 20 percent down payment requirement. The good thing with a USDA home loan is that you won’t be mandated to meet this requirement. You can choose to make the down payment depending on how flexible you would like the loan term to be.
The zero-down payment requirement helps you own a home even with little savings. It can reduce your home purchasing timeline by years, especially if you struggle to get a mortgage. However, the lender must verify your ability to raise monthly mortgage payments before approving your application.
Competitive Interest Rates
Consider taking a USDA home loan if you want a home financing program with competitive mortgage rates. The lower rate will translate to less interest paid and lower monthly mortgage payments throughout the loan.
Lenders charge an interest rate on home loans to cushion their risk for issuing them. You get to enjoy a relatively low rate on your USDA mortgage even when you don’t make a down payment.
Lower MIP (Mortgage Insurance Premiums)
Since USDA mortgages qualify as low down payment loans, they come with a mortgage insurance requirement. The MIP on this type of home loan is relatively lower than the PMI (private mortgage insurance) premiums charged on conventional home loans. However, it won’t be waived once you reach 20 percent home equity, as with PMI.
Expect to pay a yearly mortgage insurance premium and an upfront Guarantee Fee on your USDA loan. Lenders include them in the monthly mortgage payments, so you won’t have to pay them separately.
Multiple Property Types Covered
Taking a USDA loan would be a good idea when you want to finance the purchase of a fixer-upper, manufactured home, single-family home, or condo. You may also take the mortgage to buy land that will accommodate your new construction home.
You can’t use the mortgage to finance the purchase of a vacation home or investment property. The same applies to multi-unit properties even when you intend to occupy only one unit.
Gift Funds and Assistance Programs are Allowed
If you qualify for gift funds or mortgage assistance programs, you can count on them to cover tour USDA loan closing costs. You may also use them to make a down payment. The catch is that you won’t waste time trying to find, apply, or get qualified for the assistance program.
Geographic Location Requirements for the USDA Zero-Down Mortgage
USDA zero-down mortgages are only limited to various eligible locations. This is because the USDA puts a cap on the populations of areas that are eligible for funding. Many rural and suburban areas qualify for this type of home financing.
In general, you can’t use the loan to finance the purchase of a home situated in a densely-populated or urban area. However, they may qualify if some of these areas have limited mortgage options for low to moderate-income homebuyers.
It’s essential to confirm the location before buying a home. Count on the USDA eligibility map as a search tool to help you figure out whether the home is located in an eligible community.
USDA Loan Income Limits in Holmes County, Florida
For a lender to approve you for the mortgage, they will consider your Adjusted Household Income. This income is usually a sum of the income earned by your adult household members. Certain income limits apply to USDA loans since the loans are targeted at homebuyers with low and moderate-income.
Under USDA’s Single-Family Housing Guaranteed Loan Program, there are income caps on households with a maximum of 8 people.
Your loan eligibility will be based on your adjusted income, which is the income that remains after deductions are made. These deductions may include medical expenses, childcare expenses, and other mandatory expenses or financial obligations.
Debt-to-Income Ratio (DTI) and Credit Score Requirements
Lenders calculate DTI by dividing your total monthly debt obligations by your gross monthly income. In the context of USDA loans, they require you to have a debt-to-income ratio of 41 percent or less to approve you for the mortgage. However, you can bypass this requirement if the USDA’s underwriting system already approves you.
You also require a minimum FICO credit score of 620 to improve your chances of qualifying for a USDA zero-down mortgage. The credit score requirement is set by USDA-approved private mortgage lenders instead of the US Department of Agriculture.
While assessing your creditworthiness, lenders will review your credit history to help them determine if you usually make on-time payments. Your credit history will also point out any defaults or delinquencies you’ve had in the recent past.
Besides being situated in a qualifying location, the house you intend to buy must adhere to specific requirements to get USDA approval for financing. The standard requirements include a safe structure, functioning plumbing, electricity, and adequate access to wastewater systems and water. USDA-specific property requirements include:
- Acreage that’s sizeable enough not to be used for commercial activities or subdivided
- Square footage not exceeding 2,000 square feet
- Square footage not below 400 square feet
- Modest and residential character
In addition to these requirements, the property must undergo a professional appraisal. If the appraisal reveals any problems, the purchase may fail to close until these issues are fixed. You have a window of up to 15 days to agree with the seller on how to fix these problems.
When negotiating the fixes, your seller may agree to lower the purchase price if you pay for them. They may also make the repairs for the home to meet USDA property guidelines and improve the chances of closing. Take time to check out the repairs and only sign an agreement if the work was satisfactory.
Loan Limits for the Zero-Down USDA Mortgage
You know that USDA mortgages have a zero down payment requirement, lower interest rates, and low mortgage insurance premiums compared to other loans. But what else do they offer?
They have no limits if you plan to take a Single-Family Guaranteed Loan, which forms part of most USDA loans disbursed. However, expect a loan limit when taking a Direct Loan. To further understand these two types of loans, here’s a brief breakdown of how they differ from each other:
USDA Guaranteed Loans are offered by mortgage lenders, credit unions, and private banks to homebuyers with low to moderate-income (of up to 115 percent of their area’s median). While they have USDA backing, they carry no limits.
- USDA Direct Loans are issued by the federal government to help homebuyers with very low and low income (50 to 80 percent of their area’s median income) afford home ownership. They have certain loan limits, provided you qualify. The limits include $970,800 if the property is situated in a high-cost area and $336,500 for properties located in most eligible parts of the country.
Does Private Mortgage Insurance (PMI) Apply to USDA Loans?
Since USDA loans carry some degree of risk to lenders due to their zero down payment requirement, lenders require you to pay mortgage insurance premiums (MIP). The premiums help protect them against potential defaults or delinquencies.
Unlike conventional loan programs with a PMI requirement, USDA loans have a MIP requirement. MIP is charged because PMI premiums are paid to conventional home loans. However, PMI can be canceled if you attain a 20 percent equity in the property or removed if you reach 22 percent home equity, unlike MIP, which is paid over the life of the loan.
The good thing about USDA MIP is that it boasts lower interest rates than PMI. It isn’t based on a down payment and is more affordable in the long run. You can also split it into 12 monthly installments and pay it with your monthly mortgage obligations.
Comparing USDA MIP with Mortgage Insurance Requirements of Other Government Loans
Government-backed mortgage programs like the FHA home loan program have a higher MIP than the USDA Guaranteed Loan Program. FHA-approved lenders require you to pay an annual fee and an upfront fee that lasts throughout the loan, like USDA-approved ones. They also allow you to roll the fees into your monthly mortgage obligations.
USDA’s upfront mortgage insurance fee is 1 percent of the loan amount, while FHA’s is 1.75 percent. Expect an annual premium rate of 0.35 percent with a USDA loan instead of the 1.05 percent charged on an FHA home loan.
Top Fun-Filled Outdoor Activities to Do in Holmes County, Florida
Situated in the northwestern part of the Sunshine State, Holmes County, Florida, has beautiful natural sceneries. You may consider visiting this county for its fun-filled recreational opportunities. Here are five of the best fun outdoor activities you may consider:
Diving at the Vortex Spring
As one of the safest diving resorts in the US, Vortex Spring comprises a 520-acre playground with about 28 million gallons of water. The property is also packed with lots of family-oriented activities such as scuba diving. Temperatures in the spring stand at 68 degrees.
You can explore the nature trails in the spring or take a dip in the waters with the help of on-site trained and certified instructors.
Vortex Spring is a hub for swimming and snorkeling, besides offering beautiful lodging facilities and campgrounds. It can suit you whether you are a novice or experienced diver.
Picnicking at Ponce de Leon Springs
Ponce de Leon Springs boast water temperatures of 68 degrees F all through the year. The spring converges two underground water streams and generates about 14 million gallons of water daily.
While at the site, you can go for a self-guided nature trail through the hardwood forest. You get the opportunity to learn about the local wildlife and ecology. Seasonal guided walks by rangers are also available.
You may picnic with your friends at the park since there are plenty of pavilions and grills at the site. If you enjoy angling, the waters have many panfish, chain pickerel, largemouth bass, and catfish to catch.
Fishing in Lake Cassidy
Lake Cassidy is a lake in Holmes County, Florida, with plenty of recreational fishing opportunities. It is regulated by the Florida Fish and Wildlife Conservation Commission. You can even buy a fishing license from the Lake Cassidy Fishing License at any time of the day.
The lake is home to pumpkinseed sunfish, bullhead catfish, and yellow perch. You can also catch black crappie, largemouth bass, and rainbow trout from this water body.
Handpick Blueberries at Tison Blueberry Farm
Tison Blueberry Farm is a family-owned and operated farm known for its blueberry picking activities. You can only visit the farm from late May to the end of June when the blueberries are ready for picking.
One fun fact about blueberries is that they are usually harvested by hand to ensure the harvested fruits are of high quality. Machines tend to leave blemishes on the fruit. Even more, there’s a high demand for blueberries free of blemishes in the fresh food market.
The handpicked blueberries are usually fresh, pleasant tasting, and reasonably priced. The farm is the perfect place for friends and family to converge and enjoy what nature offers. It is also suitable for kids of all ages.
Sports at Memorial Field of Bonifay
The Memorial Field of Bonifay is a sporting complex that hosts plenty of sporty events all year, including rodeo. Depending on your tastes, you can find a sport to engage in or a sports team to cheer for.
All sporting events at the Memorial Field are well-organized to accommodate players, fans, and spectators of all ages. The surrounding atmosphere is also perfect if you want to break away from your day-to-day routine.
The Bottom Line
All in all, USDA home loans make the home buying process affordable for borrowers in eligible rural and suburban areas with low to moderate-income. While you are required to pay the loan closing costs, you enjoy the zero down payment requirement and lower interest rates. Make the most out of USDA zero-down mortgages by checking your eligibility.