When most people hear USDA loans mentioned, their first impression is that these are designed for rural potential homeowners who earn well below the national median income.
There is a touch of truth to this, especially in these tough economic times. The reality, however, is that plenty of suburban, middle-income Americans and potential homeowners qualify for USDA loans.
In this piece, we'll be delving into the intricacies of USDA loans, figuring out what they are all about and what you need to do to get one, with a particular focus on the USDA loan program in Okaloosa County, Florida.
Let's get right into it.
What is a USDA Loan?
To put it simply, USDA Single Family Housing Guaranteed Home Loans are a class of loans guaranteed by the United States Department of Agriculture, hence the acronym. The loan program allows potential homeowners to access home purchase loans without paying down payments and offer competitive rates on their subsequent payments.
They make such terms possible for applicants even in cases where they have poor credit ratings or moderate to low annual incomes. These are the features of USDA loans that make them attractive.
The USDA does not lend money directly to applicants. Instead, it protects specific pre-approved lenders who issue out the loans, even though the USDA reserves the right to put the final stamp of approval on all applications before they are allowed to go through.
It's important to note the distinction between this loan and another type of USDA loan known as the USDA Single-Family Housing Direct Loan, which is issued directly by the federal government and is geared towards serving low- and very-low-income applicants. Most USDA borrowers qualify and apply for the 'Guaranteed' loans, and these are the types we will be referring to as we go along in this piece.
The Difference Between USDA and Conventional Mortgage Loans
To understand what makes USDA loans unique and valuable, here's a quick look at the features of conventional loans. First and foremost, conventional loans are not backed by government guarantees but by Freddie Mac and Fannie Mae, known as GSEs (Government-Sponsored Enterprises).
An essential element of conventional loans is their much higher eligibility thresholds for potential borrowers. You will need lower debt, higher annual income, and better credit scores to qualify for your funds. On average, conventional loan programs will require you to pay a 3 percent minimum down payment on the value of the home you wish to purchase.
Even though conventional loan programs will only ask for a minimum credit score of 620, it is generally prudent to go for a USDA loan if your score falls below 680. Should you apply for a conventional loan with a credit score below 620, you will probably be charged a higher interest rate on your payments since, according to the credit rating system, your loan will represent a higher risk to the lender in question.
You may also be wise to consider other government-backed loan programs such as VA (Veterans Association) or FHA (Federal Housing Association) loans, which also strive to lessen the payment burden on designated classes of borrowers.
The Eligibility Requirements for Zero Down USDA Loans
Certain conditions must be fulfilled to qualify for a USDA Guaranteed Home Purchase loan. While these may seem restrictive, they are significantly more flexible and accommodating than conventional loans. These eligibility requirements and conditions include:
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Income Ceilings - To ensure that these loans go to people that need them the most, eligible USDA loan applicants should not make more money each year than 115 percent of the median income for their area.
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Geographical location - USDA loans are available for specific rural and suburban areas, as these are considered the most in need of real estate development and investment.
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Down Payment Requirements - Unlike conventional loans, USDA loans have no down payment requirements.
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Credit Score - Even though the stated minimum credit score requirement for USDA loan qualification is 620, lenders are granted some leeway by the government to use their discretion in making exceptions, meaning that you might qualify for a USDA loan even if you fail to meet this threshold.
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DTI (debt-to-Income Ratio) - DTI is arrived at by dividing your monthly expenses/debt by your gross income per month. Lenders typically send loan applications through what's known as an Automated Underwriting System, whose function is to determine whether your application meets the required DTI ratio requirement for the loan you're asking for.
- Type of Property - The vision behind the USDA loan program is to help American families afford their own homes, which is why it is focused on supporting single-family homes that will use them as primary residences rather than commercial units.
What are the USDA Loan Limits?
There are no specified loan limits on Zero Down USDA guaranteed loans. The constraints on these loans come about naturally as a function of the lender's efforts to make sure that the borrower will be in a position to pay back the loan, which is what the eligibility requirements we've outlined above are designed to accomplish. They determine how much you can comfortably pay back each month and then set the loan amount.
It is significant to note that the calculations behind some of these criteria are more involved than they might appear. Income limit eligibility, for example, will be affected by applicable deductions such as children per home and disability, meaning that a household that may seem to overshoot the income limit ceiling might still qualify for a USDA loan.
Private Mortgage Insurance vs. USDA Loan Mortgage Insurance
When you take out a conventional loan, you will incur an additional cost referred to as Private Mortgage Insurance (PMI), a charge that will be tacked onto your monthly payments. This, however, will only apply to you if you make a down payment of less than 20 percent on closing.
This will only continue until your payments reach 20 percent of your property's equity. Your PMI payments will be pegged between 0.5 percent and 2 percent of your loan amount yearly, spread out in 1/12 installments at each payment.
USDA loans have similar costs, but how they are structured will usually save you money at the end of the day. USDA loans will call for an upfront payment currently standing at 1 percent of the loan amount at closing time. You can roll this into your loan and pay an annual charge of 0.35 percent of your outstanding loan balance.
If, for example, you're taking out a $300,000 USDA loan, you will be required to pay an upfront closing fee of $3,000 and a yearly charge of $1,050. The annual charge will gradually decline yearly, as it is calculated anew with every passing year.
Once you have reached 20 percent of your equity payments on a USDA loan, you can choose to carry out a refinancing operation, which would convert it to a conventional loan to take advantage of the more relaxed repayment schedule. Even so, the cost of refinancing will often eclipse any potential savings you might make in this way, so you will need to carefully evaluate your particular case before choosing which type of loan to take out according to these factors.
Things to Do and Places to See in Okaloosa County
Even as you consider how to access a Zero Down USDA loan to finance the purchase of your prospective home, it will help to learn a little about what you can expect once you settle down. Aside from educational opportunities, employment prospects, social amenities, and cultural events, there are plenty of attractions to keep you and your loved ones entertained in Okaloosa. These include:
Henderson Beach State Park
This is one of America's most pristine white sand beaches, stretching over 6,000 feet down the Gulf of Mexico. Seeing it for the first time, you'd be forgiven for thinking that the beach is covered under tons of pure white sugar. There's something for everyone to do here, whether you're hoping for a relaxing outing by the water or a more active day in nature.
The park has an extensive network of nature trails where you can bike, hike, or stroll as you enjoy the scenery and wildlife variety. The vegetation is a varied mix of sand pines, scrub oaks, dune rosemary, and more. If you have your binoculars on hand, you'll spot plenty of birdlife (plovers, pelicans, etc.), or you can look further into the water for the turtles and dolphins.
Six pavilions at the park allow you to keep out of the sun as you enjoy the scenery. Whether you want to do some outdoor grilling or have a picnic lunch packed, it will serve you well.
You can bring your dog along for a walk along the trails as long as you keep it leashed the whole time, but you won't e allowed to have it near the playground or on the beach. You can visit Henderson Beach State Park any day of the year, and you're allowed to spend time there until dusk or until the next day if you make a campsite reservation at one of their 60 sites, which include RV spots and tent areas.
Gulfarium Marine Adventure Park
The Gulfarium Marine Park is one of Florida's top-rated aquariums and marine life exhibits and has been a favorite with locals and tourists from all over the country for many decades. While it doesn't quite match SeaWorld's size and attractions, visitors will be delighted by its daily dolphin and sea lion exhibits. These exhibits feature live interactions (feeding, petting, and behavior signaling).
Aside from these memorable attractions, the park also hosts an assortment of alligators, stingrays, penguins, sea lions, and reptiles. This is a great way to spend a day, especially for the young and young at heart.
Private Sunset Cruise
Who doesn't love a beautiful sunset? For a romantic outing on the beautiful waters of the Emerald Coast, sign on for a private sunset cruise organized by Destiny Water Adventures. The excursion takes place on a luxurious 24-foot pontoon that carries 6 passengers and comes with a private captain to ensure smooth sailing.
You have the choice of starting point for your itinerary, with options including Destin Harbour or one of the many private islands in the sound, all of which feature frequent dolphin sightings in addition to the stunning sunset. Each cruise starts at 6:30 in the evening and lasts approximately 2 hours.
All the pontoons are fitted with Bluetooth stereo speakers to create the right atmosphere, and there's a cooler available for any food or drinks you wish to bring along. Children must have adults with them, and you can make things extra special by bringing them along during the summer when they hold fireworks displays over the harbor every Thursday of the week (plus July 4 & August 11).
The boat's captain will double up as your guide, keeping a commentary in English and answering any questions you might have. In these health-conscious times, you can expect the highest health and safety standards to be implemented, including wireless payments and the frequent airing out and disinfecting of all the venues and vehicles used from start to finish.
John Beasley Park
The John Beasley Park is one of the hidden gems of Okaloosa, comprising a large beach park featuring two dune walkovers that reach out to the Gulf of Mexico. Visitors can enjoy the park's set of two outsize pavilions, an octagonal platform, and twelve picnic tables. You won't have to worry about the amenities, as it has 208 parking spaces and ample changing and restrooms.
The spot is significantly less congested than other popular spots in Okaloosa because visitors must make reservations to some of its more exclusive areas, such as the West Pavilion. Suppose you're interested in American civic history. In that case, you'll be happy to learn that the John Beasley Park was the only beach in Northwest Florida open to African Americans during the Jim Crow era of racial segregation in America when they were not allowed to join fellow Americans at other recreational areas. To whom the park is named and dedicated, John Beasley was a staunch advocate and activist in the fight against segregation and the push toward community advancement for all races.
Northwest Florida State College
While a college may seem like a strange addition to a list such as this, you might be surprised that there's plenty more to do here than try and get your degree. You can take in some high culture by watching touring broadway shows, art exhibitions, tribute bands, dance, opera, and performances by the Northwest Florida Symphony Orchestra. A popular attraction is the President's Speaker series of lectures which invites sports stars, motivational speakers, astronauts, and other high-flying individuals to speak to the audience.
The college is spread across multiple Okaloosa campuses and nearby Niceville and Walton counties. This means that within an hour's drive of the main campus, you can enjoy tours of the Air Force Armament Museum which has over 30 planes with various arms on display, or the Heritage Museum of Northwest Florida. Outdoor attractions include the Fred Gannon Rocky Bayou State Park, Eglin Golf Course, Lions Park, and Turkey Creek Park.
Final Thoughts
Few programs in the United States do more than the USDA Single Family Housing Guaranteed Home Loan initiative. These facilities will give you the best chance to achieve your dreams, whether in Okaloosa or elsewhere in the United States. If you think you are eligible, visit any approved lender, and you might be well on your way to becoming a homeowner.
