USDA loans are affordable and designed for low-income families. Additionally, they are meant for people that plan to purchase homes in rural areas. However, to understand how to qualify, apply for, and get a zero-down mortgage, we'll have to begin by understanding what USDA loans are and who they are meant for.
Are you a Hometown Hero? Find out your eligibility for the Hometown Heroes Loan Program in Putnam County, Florida.
What are USDA loans?
As mentioned above, USDA loans are designed to help low-income families that live in rural areas become homeowners. It is a government-sponsored project meant to help people living in rural areas create stronger and better communities and enjoy a better quality of life.
The loans are meant to provide affordable mortgages to low-to-moderate income families through its Single-Family Housing Guaranteed Loan Program. The loans are government-backed, competitively priced mortgage options for people living in designated rural areas.
USDA loans are issued similarly to VA and FHA loans; however, they are even better. For instance, with USDA loans, applicants can obtain zero-down mortgages. This means they don't have to place any down payment when applying for the loan.
Additionally, the loans come with government-assisted mortgage rates designed to help approved applicants get lower rates than other government-backed programs like the FHA and VA. Additionally, applicants can borrow as little or as much to purchase their desired homes.
As mentioned above, there are some requirements that applicants should meet before their loans are approved. For instance, the rural areas (locations they wish to purchase their homes) should be recognized by the government as such. Such areas should have lots of farmland, be outside a town's outskirts, or be within a large city's suburbs.
Ideally, the homes should be in sparsely populated areas, not urban ones. About 91 % of the US is considered to be rural. Additionally, Putnam County, Florida, is considered one of the state's most rural counties. Thus, your chances of getting approved for the loan are pretty high if you want to purchase a home within the county.
How do USDA loans work?
The USDA guarantees your loan when you apply for a mortgage from your lender. As your guarantor, the USDA assures the lender of your ability to repay the loan within the allotted time frame. This reduces the lender's risk, facilitating their ability to provide low-interest loans with zero down payment, making it easier for qualified individuals to access the loan.
The USDA does not necessarily provide 100 % financing for the loan, and you can place a down payment if you want to. You could make the down payment or get help from grandparents, parents, other family members, or charitable organizations. The amount of cash you choose to place as a down payment is up to you.
However, this article focuses on individuals who do not intend to place a down payment, and we'll discuss this option further.
What's the best credit score to access a USDA loan?
The official credit score applicants should have to access USDA loans is a minimum of 640; However, there are instances where the USDA has approved loans for individuals with a credit score lower than 640. These instances are judged and awarded on a case-by-case basis and provide a chance for applicants to prove their case.
Types of USDA loans
There are two types of USDA homeowner loans, and they include 30-year and 15-year fixed rates. The USDA doesn't provide adjustable rates for mortgages provided to home buyers. Fixed mortgage rates mean that the loans will have a specific interest rate covering the entire loan period, and awarded applicants will pay fixed principal payments each month.
Additionally, 15-year fixed rates typically have higher monthly principal payments than 30-year fixed rates.
Qualifying for a USDA loan
As mentioned earlier, several eligibility criteria are used to determine candidates who qualify for USDA loans. Loan applicants that qualify for USDA loans should be able to:
Prove their creditworthiness
The USDA provides financing for applicants with a preferable credit score of 640 and above; however, (as mentioned before), there are instances where they've approved loans for individuals with a credit score of 639 or lower. You could have them re-assess your case to determine whether you can qualify for a loan if your credit score is 639 or lower.
A low DTI (Debt-to-Income) ratio can help your case in case you have a low credit score. Your DTI is derived from your Automated Underwriting results. However, as mentioned earlier, the USDA is flexible when determining an applicant's creditworthiness.
You can qualify with a high DTI and low credit score, but having a high credit score and low DTI can get your application accepted quicker.
Be a legal permanent resident
You must be a legal permanent resident in the US to qualify for a USDA loan. People that aren't legal US citizens are advised to obtain permanent legal status before applying for the USDA loan.
Maintain dependable income
USDA mortgage applicants are required to maintain dependable income, which the USDA defines as paid income amounts that are fixed or set and come from the same source regularly. This income can come from your employers or business and can be proven through payslips or bank statements.
Your application should be for a primary residence in a rural area
Not only should the home be in a rural area, but it should also be your primary residence. For instance, you can't apply for a USDA mortgage to purchase a secondary home, vacation home, or rental property. By checking the USDA's property eligibility map, you could check if your location is an eligible rural area.
Matching household income
Your household income should be lower or match 115 % of the area's household income. You may fail to qualify for a USDA loan if your household income exceeds your preferred location's household income. The loans are designed to help individuals with a low adjusted household income acquire funding to buy a home.
Your household income includes yours and any other individual cohabiting with you, including any dependants earning money or your spouse. An adjusted household income includes your household's total income after deducting various bills and costs. The deductions may include expenses, allowances, child care, etc.
You could qualify for financial assistance for your mortgage if you have an adjusted household income exceeding 115 % of your area's income if you make the deductions and lower the adjusted household income.
Can you qualify if you meet some of the criteria?
You can qualify for a USDA mortgage if you meet some and not all of the criteria. However, it depends on what they are. For instance, your application won't be accepted if you aren't a legal permanent resident or want to purchase a home in an urban location.
Additionally, you aren't likely to be accepted if you can afford to purchase a home through other means. For instance, if your adjusted household income exceeds 115 % of the area's income, even after making your deductions.
Benefits of a USDA loan
There are many benefits to getting a USDA loan; the only catch is purchasing a home in a rural area. The loans offer more accessible financing for individuals that have financial constraints or want to live in rural areas and get away from the hustle and bustle of the city. The benefits include:
Zero minimum down payment
USDA loans provide zero minimum down payment for qualified individuals, which is quite something, especially when you compare it to other prospective homeowners looking to buy homes in urban areas. It's also a great advantage compared to individuals funded through the VA and FHA.
Zero down payment USDA loans make it easier for individuals with financial constraints to own homes at lower rates without stressing about saving up some cash for a down payment.
The USDA provides easy refinancing options if future mortgage rates drop through the USDA's Streamline Refinance. Current homeowners only need to prove they've paid their mortgage on time for 12 consecutive months before approval. The refinance then lowers your monthly payment by 50 dollars each month if you are approved.
Use the loan to cover repairs
While the loan allows homebuyers to borrow 100 % of their home's purchase price, it also provides 27500 extra dollars to repair and improve homes if needed. Homeowners could use the cash to make the home energy efficient, replace the roof, or remodel the home and make it more accessible for disabled individuals.
Do you need to repay the USDA loan; Are they assumable?
You must pay your USDA loan even when you choose to sell the home or move before you are done paying for the mortgage. However, you should also know that the loans are assumable.
You can transfer them at the same interest rate to future homeowners. You could sell your home with the current mortgage rate in five years. This eases the resell process because of the already-low mortgage rate.
How to get a zero-down mortgage
You can get a USDA loan with zero down payment if you meet all preset requirements. As mentioned earlier, the loans are part of the government's plan to create affordable housing options for low-income residents of rural areas that don't meet the requirements for conventional mortgages.
Eligible applicants whose applications are accepted get 100 % financing for purchasing their homes. Other loans like the FHA require applicants to make a 3.5 % down payment with additional upfront expenses that make it difficult for prospective homeowners to purchase a home.
USDA's zero-down feature eases the home buying process allowing individuals that would have otherwise had a hard time saving money to buy a home. The USDA does this by acting as a guarantor for the approved applicant allowing the lender to finance the purchase at lower interests and zero down payment.
The USDA assures the lender they reimburse the loan if approved applicants default on their loan. Removing this risk allows lenders to provide financing to low-income borrowers. However, as seen earlier, the loan is not a guarantee and not each applicant will be approved. Some fees are involved with the process; however, you can roll them into the loan.
USDA guarantee fee
Accepted applicants are expected to pay the lender guarantee fee; however, they can roll it into the loan. The fee was 2.75 % of the total loan before 2016; however, the USDA reduced it to 1 %. Additionally, the loan's annual fee was reduced from 0.50 % before 2016 to o.35 %. Borrowers can pay the costs out of pocket or roll them into the loan and spread through the monthly payments.
Things to do in Putnam County, Florida
There are lots of fun activities to experience in Putnam County, Florida. The county is filled with many beautiful forests, rivers, and lakes that provide breathtaking sceneries and great fishing spots. Putnam County also offers great cultural activities and interesting historical sites filled with a wealth of information you will find enjoyable.
Crescent city has a beautiful lake 2 miles wide and 13 miles long. Crescent Lake is Florida's 5th largest lake and has enough fish to host the April Rotary Club's Catfish Festival. Most visitors and locals tend to congregate on the waterfront and enjoy the buzz of the commercial district.
Few places in Florida catch the fishing on the river experience as Crescent city does. The lake's waterfront is slow enough to provide a perfect bed and breakfast experience at the Sprague House, which is only a short distance from the waterfront. Additionally, a few merchants sell antiques and collectibles if you want to create a collection.
Fishing and car enthusiasts
Apart from Crescent Lake, there are many lakes and rivers south of Putnam County that you could fish in. The spots are known for their Black Bass and are great locations for pros and amateurs to compete in tournaments looking for speckled perch, striped bass, catfish, bream, and mullet.
There's also an excellent spot for shade mechanics, NASCAR hopefuls, and individuals that love racing or watching races. You'll see various drivers compete in trucks, stock cars, ATVs, dirt bikes, carts, and even lawn mowers. There are lots of non-racing track events and concerts that are sure to fill your busy calendar.
Visit the winery
You could visit the replica of the log cabin winery's original log cabin to experience the third-generation farm's history. The winery has a commercial ten-acre vineyard addition that makes up the Muscadine wines. The farm hosts various events, including the Old Florida Wine and Harvest Festival, and is open to visitors.
Dunns Creek state park and the Welaka State Forest
You can visit the Dunns Creek state park, a location once used by steamboat operators, Native Americans, cattle ranchers, and turpentine loggers. The location encompasses nearly 20 natural communities and is filled with deep ravines, sand hills, sand pine scrub, pine Flatwoods, etc. Also, the location is home to several endangered species like the gopher tortoise.
You can also visit Welaka State forest, which has two hiking trails, and get a glimpse of the forest, including the Flatwoods, sandhills, wetlands, hammocks, and bay heads. You could follow the sandhill horse trail and experience a combination of training and show horse arenas with a 72-horse stable and an equestrian hiking/trail path.
You can visit the Putnam Historical society website if interested in genealogy and history. Articles present on the website will guide you through lots of information and sites you can explore in person, including historic districts, information on cemeteries, railroads, yearbooks, phonebooks, black history, and other aspects of the county's past.
Putnam County, Florida, is a great place to stay and raise a family. The location is quiet and far from the hustle and bustle of the city. You'll enjoy a wonderful time exploring nature and participate in various activities and festivities you'd otherwise miss. Getting USDA financing for purchasing your home is a huge added advantage.