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USDA Loans in Leon County, Florida: Learn How to Obtain a Zero Down Mortgage

Every year, more Americans qualify for home financing through various government-sponsored programs. Most of these programs are designed with specific borrowers in mind. From FHA loans to local homeowners’ assistance programs, homeownership is increasingly becoming accessible.

If you want to finance a property in Leon County, FL, but have no savings to cover the down payment, USDA loans could be your perfect option.

We have discussed how USDA loans work, from the qualification requirements to the application process and benefits.

We’ll also discuss several factors that make Leon County a great residential hub, including some fun outdoor activities available for residents.


What are USDA Loans?

USDA loans are government-backed loans funded by approved lenders and insured/guaranteed by the U.S. Department of Agriculture. The loans are offered to eligible low to medium-income borrowers.

USDA loans have zero down payments, and the interest rates are lower than the market standards. For these reasons, these loans are meant for borrowers who would otherwise not afford other mortgage products such as FHA and conventional loans.

Similarly, USDA loans can only be used to purchase specific homes that meet USDA appraisal. Such houses should also be located in rural or suburban areas within the United States.

Lenders must vet eligible borrowers before submitting loan documents to USDA for second underwriting and final approval.


USDA Loan Qualification Requirements

As noted earlier, USDA loans are only available to eligible borrowers. The USDA sets five main requirements, which borrowers must satisfy. We have rounded them up below.


Income Limit Requirements

Lenders must keenly review borrowers and choose those who satisfy the income limit requirements for the area they want to reside in. There are three income types that lenders are particularly interested in -- qualifying income, eligibility income, and adjusted eligibility income. Borrowers with low to medium income are only eligible for USDA loans.

Qualifying income is the borrower’s income, often used to determine the repayment ability. Eligibility income refers to the total household income, including salary, commission, overtime, and income from dependent children or relatives living in the household. The adjusted eligibility income is the total household income with childcare and medical expenses deducted.

USDA has set a standard loan income limit for 2022 at $103,500 for 1-4 member households and $136,600 for 5-8 member households. Depending on where you want to purchase your home in Leon County, you may still qualify for a USDA loan with a higher income, provided it doesn’t exceed 115% of the AMI.


Credit Score Requirements

USDA doesn’t have a base credit score requirement, but most lenders do. A credit score of 640 & above is considered ideal. If you have a lower credit score, you may want to review your credit reports and correct any errors or false dispute accounts. You can also apply with many lenders to boost your approval odds.


Debt-to-Income Ratio Requirements

Debt-to-income (DTI) ratio is the ratio of expenses to income. It’s a critical indicator of financial stability. The higher the DTI, the more the debts and the lesser the income. Lenders often use a base DTI of 41% to select eligible borrowers. This tells the lender that you may have some difficulties repaying the loan. Lenders want to minimize the risk of default by approving loans where borrowers can comfortably make monthly payments while still meeting day-to-day financial obligations.


USDA Location Requirements

USDA only finance homes located in rural or suburban areas. Therefore, borrowers must only choose homes in such locations to be eligible for financing. Most parts in Leon County, FL, are classified as rural or suburban, so you won’t have trouble choosing a qualifying location. To save time, you may consult your lender and get to know which areas qualify and which ones doesn’t.


USDA Property Requirements

Besides the location requirement, only those homes that meet a set of conditions are eligible for financing. USDA is meant for financing primary residential homes, not investment properties. Similarly, the home must be a single-family unit. Different residential properties qualify, for instance, manufactured homes, townhomes, fixer-uppers, construction homes, and condos. The property should also be modest, with adequate water and electricity supply and access to a functional wastewater system.


How to Apply for USDA Loans

USDA loan application begins with prequalification, where you fill a brief income review form with a lender. The lender will also do a quick credit check to determine your loan eligibility. Once a lender has pre-qualified you for the USDA loan, you’ll proceed to preapproval. We have covered this and more below.


Getting Preapproved

Preapproval is a more detailed evaluation and verification of your credit score and household income limit. The lender will request your personal and income documentation to complete this exercise. Some documents required include pay stubs, bank statements, photo ID, W-2s, and other financial documents from the last two years.

Loan pre-approval is essential for every loan application, but it doesn’t guarantee approval. After the lender pre-approves your application, you are awarded a certificate of approval, which you can use during house hunting. After the underwriting and final approval stage, your loan will be processed.


Finding a USDA-approved Home

The next step, and perhaps the most exciting one, is house hunting. Armed with a certificate of approval, you’ll be in a better position to land the best deal as more sellers will be willing to welcome your offer. This letter assures the seller that you are a serious buyer who will likely proceed to close.

Always pay attention to the USDA property and location requirements when finding a house on sale. You don’t want to waste time house hunting in some posh neighborhoods that do not meet the USDA definition of rural or suburban areas. If you are not certain of either of these, be sure to consult your lender.


Negotiation and Signing a Purchase Agreement

Assuming you have found the best home in the perfect location within Leon County, your next step is to negotiate the pricing before signing a purchase agreement. The negotiation process can be hectic, plus you need someone who understands the market better. Ideally, you want to enlist the professional help of a seasoned real estate agent.

A purchase agreement is a simple document that puts you and the seller under contract. It will specify the terms and conditions in which you buy the property. Your agent will also guide you through this signing process.


Underwriting

This is a thorough process in which the lender and USDA double-check every piece of information they have before approving a loan. Underwriting often involves checking the credibility of the income documents and re-evaluating the credit score and household income. The process is often automated but can also be done manually, especially for borrowers with a credit score of less than 640. USDA loan underwriting takes two approval stages—one by the lender and the other by USDA. That means the whole process will take a bit longer than conventional loans.


Final Approval and Closing

Suppose your application passes the underwriting process; USDA will give the lender the green light to proceed with loan processing. This is the final approval, and you’ll be a week or two from closing, i.e., depending on the number of applicants, market conditions, etc. Your agent, the seller, and the title company will coordinate and schedule a closing date, time, and location. After signing the loan documents, you’ll officially assume ownership of the property, and you’ll be responsible for the mortgage.


USDA Loan Mortgage Insurance Premium

Mortgage insurance is always required for every mortgage where the down payment is less than 20% of the loan amount. The latter is a policy that protects the lender or title holder if the borrower defaults on loan, passes away, or cannot meet the payment/contractual obligations. Most mortgage products have a certain percentage of the loan the borrower must pay towards the policy, either upfront or in installments, rolled into the home finance.

USDA loans attract a 1% fee and a 0.35% annual rate paid in twelve installments and throughout the loan duration. This insurance policy is called the mortgage insurance premium (MIP) and is cheaper than the private mortgage insurance (PMI) common with FHA and conventional loans. It’s worth noting that the borrower only pays PMI until they have built a 20% equity in their home.


Beautiful Modern new construction homes in a residential area in Florida


Benefits of USDA Loans

Getting approved for a USDA loan means a lot to borrowers who would otherwise not afford or qualify for FHA or conventional mortgages. If you consider getting a USDA loan, here are some of the ways you could benefit:


Zero Down Payment

Since USDA loans are 100% financing from the lender, you don’t have to pay anything upfront. This gives you an easier and more convenient way to own your home, even with little to no savings. Other mortgage products, such as the FHA, require a 3.5% down payment, while conventional loans require a 3% down. For someone with a low to medium income, this is a lot of money and is often a barrier to homeownership.


Low-Interest Rates

Unlike most mortgage products in the market, USDA loans are highly subsidized, allowing borrowers to pay less in monthly installments. The rates you get will also be based on the standard figures set by USDA. That means your credit score, income limits, or down payment paid (if any) doesn’t affect the rates your loan will attract.


Lower Monthly Insurance Premium (MIP)

Compared to the private mortgage insurance for conventional loans and FHA, MIP is comparably cheaper and predictable. As noted earlier, USDA-approved lenders only charge a one-time 1% fee and an annual 0.35% of the total loan amount, paid throughout the loan duration in installments. The best part is that you do not have to pay the 1% fee up front. You can have it rolled into the home financing, so you won’t have to put anything down.


Favorable Credit Requirements

Since USDA doesn’t set any credit limit requirements, most lenders use risk-management strategies to vet lenders. For instance, if you don’t have a credit history but show reasonable creditworthiness, you may be considered for a USDA loan. Similarly, borrowers with low credit scores may also be eligible for financing. More often, this will depend on your chosen lender and other variables, such as the overall housing market.


You Can Use Closing Cost Assistance

Most lenders charge a closing fee, often 2-5% of the approved loan amount. Depending on the property you want, the closing fee can be pretty costly, running into tens of thousands of dollars. With USDA loans, you can use closing cost assistance to lower the closing fees. Common closing cost assistance programs include grants, forgiveness loans, gift funds, and seller concessions. You can always explore the options to choose what works best for you.


5 Fun Outdoor Activities in Leon County, FL

Leon County, FL, is a great residential hub with beautiful neighborhoods and several fun outdoor activities. The locals are amicable and welcoming, plus the weather is favorable all-year prolonged. If you are considering buying a home in this part of Florida, several options await you. Let’s explore some fun outdoor activities you and your family will enjoy in your new residence.


Visit Lake Ella & Fred Drake Park

Located 1.5 miles from downtown Tallahassee, Lake Ella and Fred Drake Park is a popular recreational spot among locals and visitors. The park comprises a 12-acre Lake Ella and a 6.5-acre Fred Drake Park. This park was initially a big cattle rearing ranch but has become the fun attraction site it is today.

This park is well-maintained and quite serene, making it a great hangout spot for your entire family. The park features picnic shelters, walking trails, three fountains, and a site meant for community events. Some fun activities you may engage in include roller skating, skateboarding, jogging, walking, etc.


Explore Alfred B. Maclay Gardens State Park

The Alfred B. Maclay state park is located 5.8 miles from downtown Tallahassee and is one of the few parks hosting nearly all the outdoor fun activities. The park sits on 1,176 acres of reserved land with unique ornamental gardens that trace back to the early 1920s. This spot is a must-visit beauty haven that welcomes hundreds of thousands of locals and tourists annually. Whether you want to swim, hike some secret gardens and trails, fish or kayak, this is the place for you.


Hike the Cascades Park

The Cascades Park is a 24-acre reserved hub with historical landmarks, a theater, paved trails, and a war memorial. Locals consider this park a social center of Tallahassee and the broader Leon County. If you want to go on a leisurely afternoon hike without the hassle of extreme heat and rugged terrain, this park has you covered.

Thanks to its strategic location and the presence of a wide range of fun activities, you can take your kids with you, and they will surely enjoy the open playparks and waterfalls. The sidewalks are also great for cycling, skating, dog walking, etc.


Enjoy a Family Time at the Fun Station

Leon County has a lot for families looking to spend the weekend in a kid-friendly environment. One that’s very popular is the Fun Station, located along Sherer RD, Tallahassee. The colorful, boxy building features a mini-golf, Go Karts, a giant Sizzler, Nitro Trucks, and more. Take your kids to this spot, and they’ll have a once-in-a-lifetime experience.


Learn some History in Leon County Museums

If you are a history lover, Leon County has several museums for you to explore the culture and the behind-the-scenes of this Florida County. Famous museums include the Goodwood Museum & Gardens and the Knott House Museum in Tallahassee. The latter was built in 1843 and served as a temporary Union headquarters in 1865. On the front steps of this building (now a museum), Abraham Lincoln issued the famous Emancipation proclamation.

On the other hand, the Goodwood Museum & Gardens features an 1830s plantation house, which sits on a 16-acre tract of landscaped lawns and gardens. The buildings, trees, and antebellum architecture are a point of interest, and you’ll love spending some of your free time here.


Summary

Residential property can be impossible without government subsidies and special home financing programs. This is especially true among low to medium-income Americans who do not have enough savings to cover the costly upfront fees. Luckily, USDA loans can be used to purchase properties in several parts of the country. Considering buying a property in Leon County, you have a lot to explore and enjoy. Get pre-approved today and start your homeownership journey.

With over 50 years of mortgage industry experience, we are here to help you achieve the American dream of owning a home. We strive to provide the best education before, during, and after you buy a home. Our advice is based on experience with Phil Ganz and Team closing over One billion dollars and helping countless families.

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