With all that, it’s easier to think of Palm Beach as “heaven.” But then, you may ask, “why don’t most people choose to live there?”
Well, answers to this question may vary with different people. But as much as they wouldn’t mind waking up to the sight of beaches and palm trees, covering home costs in Palm Beach County isn’t a walk in the park.
But don’t throw your ‘dream’ of living in Florida’s gentler side out the window just yet; there could be a way out! Better put, affording a house in Palm Beach County might be easier than you think, especially if you cut it for a USDA home loan.
What are USDA Loans?
Anytime you hear about the United States Department of Agriculture (USDA), it’s easier to start thinking of things like plant inspections, tracts of land, food safety, or farms. But it’s not always about such, and as surprising as it may sound, the USDA is also a notable supporter of rural development.
Perhaps you’ve always wished to one day settle down in a home surrounded by grasslands, or maybe the Palm Beach vibe seems to be catching up with you. If so, acquiring a home may be more easily achievable than you think, thanks to USDA’s mortgage assistance programs.
But what exactly are they?
USDA Loans are competitively priced or rather government-backed mortgages designed for low- to moderate-income families in rural areas who can’t afford sanitary, safe, and decent housing and to make it more affordable for them to buy homes. Despite being rural development loans, many suburban areas also qualify for these USDA loans.
Again, these loans are government-backed. This means that participating private mortgage lenders can now accommodate borrowers who, under normal circumstances, hardly qualify for traditional loans, typically due to a lack of a down payment or low income.
The main objective of the USDA home loans is to promote community growth and offer homeownership options in designated rural and suburban areas. And given that they boast 100% financing, they are a steal for first-time homebuyers that find it challenging to make the initial down payment but whose income is enough to meet regular mortgage payments.
Nonetheless, it’s essential to understand that USDA mortgage loans aren’t exclusive to first-time homebuyers.
Types of USDA Home Loans
USDA offers two types of rural housing mortgages:
- USDA Direct Loan
- USDA Guaranteed Loan
While both programs offer zero-down payment financing and housing in rural areas, they are pretty different. Let’s break each of them down a bit.
USDA Direct Loan
USDA Direct Loans are purposed for borrowers who lack access to sanitary, safe, decent housing and have low or meager incomes. Typically, this loan runs for a 33-year term, although some may go for as long as 38 years.
As of November 2021, the interest on a USDA Direct Loan was 2.5%, but after subsidies, your effective rate may reach as low as 1%. To qualify, you’ll need to meet the following conditions:
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A 0% down payment.
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A credit score of at least 640. But there are exceptional cases – you can still cut it even with a zero-credit score or a score lower than 640. Even better, you can build a stronger case by presenting proof of valid nontraditional credit, e.g., rental housing payments, or if your credit report has zero or a few delinquent payments.
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A 41% debt-to-income ratio, with particular consideration to cases with other compensating factors, e.g., if you have a history of allocating a higher income proportion to housing.
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The property must be situated in a rural area – where the population doesn’t exceed 35,000.
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Very low income. This may vary with household size and county.
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The property must be a non-income-generating primary residence and cannot feature an in-ground swimming pool.
- The property size should be impossible to subdivide under local zoning laws, and the home size shouldn’t exceed 2,000 sq feet.
Guaranteed USDA Loan
For this program, a mortgage is guaranteed by the USDA but issued through a local participating commercial lender, e.g., a bank. As you’d expect, a down payment isn’t required, and eligible applicants enjoy low mortgage interest rates.
However, unlike the direct loan, the guaranteed USDA loan requires the borrower to make a mortgage guarantee fee payment – 1% of the loan, which the lender can cover. In addition, borrowers are also expected to pay another 0.35% annual fee.
Keep in mind that it’s up to individual lenders to decide on the interest rates at which to offer these mortgages. So, take your time and explore your options. Here’s what you need to be eligible for a guaranteed USDA loan:
- A 0% down payment
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Zero assets
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A credit score of at least 640. Nonetheless, there is no credit score limit. You only need to demonstrate the willingness and ability to repay the mortgage. In other words, you can still be eligible without a credit score or one lower than the preferred score. Like the direct loan, providing a positive source of nontraditional credit and lacking delinquent payments can help you build a better case.
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A 41% debt-to-income ratio. You may be eligible if you’re accustomed to allocating at least 41% of your income to paying debts and taking care of your other financial responsibilities.
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The property must be located in a rural area.
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Moderate to low income – must be less than 115% of the area’s median income and not be eligible for traditional financing without PMI (private mortgage insurance). You’ll also be required to present proof of seasonal income, two years of self-employment, or one year of conventional employment.
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The property must be a non-income-generating primary residence and can’t include an in-ground swimming pool.
- The property and home sizes should be standard and modest for the area.
USDA Loan Limits 2022
One key upside of USDA Single-Family Guaranteed Loans is that they have no caps or loan limits on the amount to borrow. However, your borrowing power depends on your finances – the lender will still have to consider factors such as DTI, credit score, and income when capping your mortgage amount.
As for the USDA Single-Family Direct Loan program, the loan limits are there. For that reason, most USDA borrowers opt for guaranteed loans, which, as mentioned earlier, have no loan limits.
Unlike the alternative, direct loans are not offered through participating local lenders but rather by the USDA itself and are designed to benefit low- and very low-income borrowers.
Do USDA Loans Require Private Mortgage Insurance?
Private Mortgage Insurance is simply mortgage insurance on non-government-backed or traditional loans. But USDA home loans are not; therefore, they don’t demand PMI. In simpler terms, PMI only applies to conventional loans and in exceptional cases where the borrower’s home equity doesn’t exceed 20%.
But like VA loans, USDA home loans feature what’s referred to as a guarantee fee, which in this case serves as the PMI.
What are the Upsides of Getting a USDA Loan?
USDA mortgages have a few upsides over other mortgage programs. They include:
Zero Down Payment
This is arguably the central selling point of USDA loans. Unlike standard mortgage counterparts, USDA home loans demand zero down payment, resulting in substantial savings upfront.
For instance, a conventional loan requires at least 3% down. So if you want to buy a home worth $200,000, you’re talking about a down payment of $6,000. On the other hand, FHA loan borrowers pay slightly more at 3.5%, meaning they’ll be required to pay a whopping $7,000.
USDA borrowers won’t have to fret about such as they can acquire a home without putting a cent down, thus shortening their home-buying timeline significantly.
Competitive Interest Rates
Remember, USDA mortgage programs are government-backed, reducing the lenders’ risk. They can easily offer competitive interest rates, even for applicants with no down payment. Moreover, with a reduced rate, borrowers pay relatively lower monthly payments, which in the long run, means considerable savings in the interest paid.
Covers Several Property Types
USDA mortgages can be used to acquire different property types, such as:
- Manufactured home
- Condo
- Single-family home
- Fixer-upper
- Land (If you wish to construct a new home)
Nevertheless, USDA loans can’t be used on vacation homes or investment properties. It’s also essential to note that USDA loans don’t cover multi-unit properties even if you intend to stay in one unit. Quick tip? If you’re shopping for a 2–4-unit home, you might want to consider an FHA loan instead.
Reduced Mortgage Insurance Premiums
You can hardly miss mortgage insurance for most low-down payment loans. For example, conventional mortgages typically demand private mortgage insurance (PMI), while FHA loans require borrowers to pay upfront and constant MIP through the loan life.
VA loans, on the contrary, don’t require mortgage insurance, but applicants are expected to pay a percentage of the purchase price in the name of a loan funding fee. USDA mortgages aren’t any different, as they feature an annual MIP and upfront guarantee fee.
However, the insurance rates on USDA mortgages are relatively lower than those of their FHA counterparts. Therefore, USDA loans could be your better option (assuming you qualify for both programs), given the significant savings you’re likely to make on mortgage insurance.
Allows Down Payment and Gift Funds Assistance
The USDA home loans allow applicants to use assistance programs or gift money to help make a down payment (if they wish) or cover their closing costs. But as we’ve seen earlier, USDA mortgages don’t necessarily require you to make the extra effort of looking for down payment assistance – well, not unless you want to make one.
Luckily, finding assistance programs isn’t the hardest nut to crack, given the many options available. Often, this assistance comes disguised as grants, which you, the applicant, aren’t required to repay. It may also take the form of forgivable loans that can be pardoned by simply spending a specified period in the home.
Is Using Your Mortgage to Acquire a Home in Palm Beach County, FL, Worth It?
Short answer? Definitely yes! If you’re looking to move to Palm Beach County, FL, first of all, congratulations! As earlier mentioned, it’s a notable destination with a lot to offer. A few attractions to look out for in Palm Beach County include:
Paddle Boarding Palm Beach
Are you a water adventure buff? If so, you’re in for an exciting experience at Paddle Boarding Palm Beach (PBPB). Open throughout the week and out of Riviera Beach, there’s simply a lot to do here, from kayaking to picnicking and enjoying the 3-hour guided eco-tour of the MacArthur Beach State Park.
Additionally, you can’t claim to have visited PBPB and not go for the 90-minute Sunset Paddle Experience to enjoy watching the sunset.
Delray Beach
Imagine an intimate beach town that also gives you big-city vibes – that’s Delray Beach for you. It’s a renowned destination, which doesn’t come as a surprise given that the town is considered one of the happiest seaside towns in America.
The downtown and the city’s nightlife scene are nothing but incredible. And suppose you wish to veer off to see what nature the town has to offer; you may like your time at West Delray Regional Park.
With open land and water covering over 300 acres, there’s a lot to experience here, from tent camping to bike training. Even more impressive, the park also features a car track and runway for vehicles and radio-controlled aircraft. There’s even an archery club here (although they require a permit to participate) and a boating lake if you’re into water activities.
Grassy Waters Preserve
The Grassy Waters Preserve in West Palm Beach is just the ideal spot for nature fanatics. It’s home to an array of native wildlife, thanks to the wetland ecosystem stretching 23 sq miles. The preserve hosts several trails, which are accessible for free to the public. Best part?
Sign up for the guided hiking and canoe programs and be on the lookout for alligators, bobcats, otters, and white-tailed deers. If fishing is your thing, hit the preserve’s north side at Gator Lake for catch and release angling.
A quick note: don’t leave out any trash here since West Palm Beach City’s freshwater supply is sourced from the reserve.
Loxahatchee National Wildlife Refuge
You may have heard of the famous southern Everglades. But did you know that the nature and wildlife preserve also has a northern aspect? If not, you might want to check out Loxahatchee National Wildlife Refuge.
This reserve is part of the significantly diminished northern Everglades, with swamps, sawgrass marshes, and wet prairies. Besides offering shelter to wildlife, this refuge is also key to maintaining water levels for emergency purposes and irrigation.
Moreover, it features canoe trails, an observation platform, walking trails, and a visitor’s center, all of which are available for leisure and education.
Applying for USDA Home Loans in Palm Beach County, FL
Does Palm Beach County sound like a perfect place for you to live? If yes, then make your dream come true by getting a USDA home loan, which, to remind you, requires zero down payment. To apply, follow the steps below:
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For a USDA Direct Loan, check out USDA’s fact sheet and be sure to submit your application to the USDA Rural Development.
- For the USDA Guaranteed Loan, check this list of USDA-approved lenders in the US and find one in Palm Beach County. The lender you pick will assist in evaluating your eligibility and shall be who to consult for any queries or clarifications.
Set to Move to Palm Beach County, FL?
Dreaming of moving to Palm Beach, FL, isn’t enough until you live there. But, as we’ve seen through this piece, it’s not impossible, thanks to USDA Home loans.
So, what’s stopping you now? A USDA mortgage, not even a bad credit score, lack of down payment, or a low income can stop you from being a resident of Palm Beach County. All that’s required of you is to apply for your home loan accordingly and wait for USDA’s feedback.
