(Mar 25, 2023)
But what makes USDA loans so appealing when compared to other government-backed mortgages? One reason is that they boast low-interest rates and mortgage insurance premiums. They can also suit you if you are in a position to afford the monthly mortgage payments.
Are you a Hometown Hero? Find out your eligibility for the Hometown Heroes Loan Program in St. Lucie County, Florida.
With the types of home loans available, it can be challenging to know whether a USDA zero-down mortgage is right for you. Here’s a breakdown of how the loan works and its requirements in St. Lucie County, FL.
What are USDA Loans?
USDA zero-down loans are government-sponsored mortgages targeted at low and moderate-income homebuyers looking to purchase properties in suitable locations. They were mainly issued as rural development loans but are beginning to cater to many suburban dwellers.
You can turn to the USDA loan program if factors such as lack of down payment and low income prevent you from qualifying for a conventional loan. A USDA-approved lender will approve you for the loan thanks to the government backing it has.
This type of loan is issued to expand homeownership opportunities in underserved areas. It also seeks to impact growth in eligible suburban and rural areas. Provided you are creditworthy; they can empower you to buy a home to realize the American dream.
With an attractive 100 percent financing option, USDA loans appeal to first-time homebuyers. You can also consider the loan if it’s not your first time buying a home.
What Benefits Do USDA Zero-Down Loans Offer?
USDA loans stand out from other government-backed loans due to their zero down payment requirements. They also come with competitive interest rates and low mortgage insurance and are available for multiple property types, as discussed below:
Zero Down Payment
Raising a down payment shouldn’t be an issue when taking a USDA loan since the loan doesn’t mandate you to put any money down. With a zero-down payment requirement, the loan can reduce your home purchasing timeline in the long run. It allows you to focus on important aspects such as planning your finances to afford the monthly mortgage payments.
Lower MIP (Mortgage Insurance Premiums)
Mortgage insurance is mandatory for mortgages that require you to put little money down. Though USDA mortgages have a mortgage insurance requirement, the insurance premiums are quite affordable compared to those of FHA and conventional loans. Conventional loans require private mortgage insurance (PMI), while FHA and USDA loans require an upfront fee and ongoing MIP.
Gift Funds and Assistance are Allowed
USDA-approved lenders can allow you to turn to gift funds or an assistance program to cover down payment and closing costs. They won’t impose strict requirements when finding, applying, or qualifying for assistance programs.
Even better, most of the assistance programs are available as grants. They can also come in the form of forgivable loans, which can only be repaid as long as you live in the home. In this case, you won’t need to repay them.
Reasonable Interest Rates
It’s common for conventional mortgage lenders to impose high-interest rates on their loan programs. The high-interest rates help cushion their risk of issuing loans.
Lenders charge low-interest rates for USDA mortgages since the government backs the loans. Lower rates translate to lower monthly loan payments and less interest paid in the duration of the loan. You will still be entitled to these rates even when you don’t make a down payment.
Available for Different Property Types
Homes aren’t the only eligible property type you can use a USDA mortgage to finance. The loan can help you buy land that you can use to build a new construction home.
Eligible property types under the USDA loan program include single-family homes, fixer-uppers, manufactured homes, and condos. The program can’t finance the purchase of vacation homes, investment properties, or multi-unit properties. Only homes that meet the primary residence requirement are eligible.
USDA Zero-Down Loan Limits
Besides the zero down payment requirement, most USDA homes don’t have a specific loan limit. The loan program you’re enrolled in will determine whether a lender will subject you to loan limits. No loan limits apply for a USDA Guaranteed Loan, which targets low to moderate-income homebuyers. However, your income must be up to 115 percent of your area’s average income.
The limits only apply to USDA Direct Loans, which form a tiny percentage of all USDA loans. For a Direct Loan, the limits stand at $336,500 countrywide and up to $970,800 if the area has a high cost of living. Direct Loans target home buyers who earn less than 50 to 80 percent of the area’s median income.
If the purchase price is beyond the loan limit in your location, you may have to get a Guaranteed Loan instead of a Direct Loan. With this type of loan, the lender will base your loan size on your repayment ability by measuring your income, credit history, and debt-to-income (DTI) ratio.
Income Limits for USDA Zero-Down Loans
Two sets of income limits apply to USDA zero-down loans. The first one targets USDA Single-Family Housing Guaranteed Loans, while the other applies to USDA Single-Family Direct Loans.
The Guaranteed Loan Program is ideal if you buy a home for the first time since it has competitive interest rates and a zero down payment requirement. On the other hand, the Direct Loan Program, offered by the USDA, is challenging to get and targets very low and low-income borrowers.
The income limits for both loan programs are based on your area of residence. Income is crucial when getting pre-qualified for a USDA mortgage, but it isn’t easy to calculate your income eligibility.
What USDA Lenders Look For When Determining Income Eligibility
USDA-approved lenders base their calculations for income eligibility on three numbers. These types of income include adjusted eligibility, eligibility, and qualifying income.
Qualifying income is your current gross income and is used by lenders to evaluate your ability to afford monthly loan payments on the amount you applied for. Consequently, eligibility income encompasses your entire household income and is used to verify if you are within your area’s USDA loan income limits. Your adjusted eligibility income is the gross household income that remains when lenders subtract necessary deductions such as childcare expenses and medical expenses.
Credit Score and DTI Needed for a USDA Zero-Down Loan
Most private mortgage lenders require a minimum credit score of 620 to approve you for a USDA loan. However, there’s no credit score limit set by the USDA. In this case, you can still apply for the loan with a low credit score, provided the lenders are confident in your ability to repay it.
USDA loans are disbursed to make homeownership more accessible to unprivileged people in eligible rural and suburban areas. One of the ways they can achieve this is through flexible credit guidelines.
Besides the credit score requirement, you need a debt-to-income (DTI) ratio of 41 percent or less to get approved for a USDA mortgage. The DTI ratio is determined by dividing your total monthly debts by your gross monthly earnings. You can bypass the DTI requirement and get approved for the loan if you have approval from the computerized underwriting system run by the USDA.
Meeting the Eligible Location Requirement
Since the United States Department of Agriculture mainly focuses on rural development, its loan products help improve homeownership opportunities in rural and suburban areas. The location where you intend to buy a property with a USDA loan should fall in one of the following categories:
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Population of up to 10,000 or less in an open country area or one with rural character
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Population not exceeding 20,000 in an area not situated in a Metropolitan Statistical Area
- An area with relatively low or inexistent mortgage opportunities for borrowers with low and moderate-income
The good thing is that you can use USDA’s interactive eligibility map to find an eligible property. Type in the home’s address and narrow your search to the location.
What “Rural in Character” Means
The phrase “rural in character” refers to an area with a population density of up to 1,000 per square mile. The US Department of Agriculture bases this figure on various circumstances such as economic hardships and local university student enrollment.
You can still apply for the loan in an area with a population of less than 35,000, provided it is rural. Lenders will consider you for the mortgage if it’s difficult for residents with low or moderate incomes to qualify for home loans there.
Property Requirements for USDA Loans
The home needs to be located in an eligible suburban or rural area to be considered for USDA funding. It also has to meet basic requirements as with other mortgage programs. These conditions include adequate water access, access to wastewater systems, a safe structure, and functioning electricity and plumbing.
Besides the basic requirements, the property has to meet USDA-specific requirements. They include:
- Acreage that is not big enough to be considered for commercial use or subdivision
- Maximum square footage of up to 2,000 square feet
- Minimum square footage of up to 400 square feet
- Modest home with a residential character
The residential property must be appraised before being financed with a USDA loan. If it fails the appraisal, you may have to find another property. However, you will be given a 15-day timeline to agree with the seller on how and who will fix the issues before your loan closes.
It’s essential to sign a statement acknowledging that the repairs were satisfactory if the sellers made them. You may negotiate for a price reduction or look for another home if the fixes are unsatisfactory.
Is PMI a Requirement with USDA Zero-Down Mortgages?
Private mortgage insurance (PMI) is required for conventional mortgages, not USDA home loans. They are billed if you put 20 percent down on a conventional loan to reduce the lender’s loan origination risk.
Mortgage insurance is usually based on the type of loan you’re taking. While most lenders consider it an annual fee, you can pay it in 12-month installments along with your monthly mortgage payments. USDA loans have a mortgage insurance requirement encompassing an upfront and annual mortgage insurance fee.
The upfront fee paid on a USDA loan as part of your mortgage insurance premium should be paid during closing. However, your lender can allow you to roll the fee over to your loan. They can also divide your annual MIP into 1/12 installments that you can include in the monthly loan payments.
Expect an upfront mortgage insurance fee of one percent on a USDA zero-down loan. Lenders will charge you an annual MIP fee of 0.35 percent, which equals $29 per month on every $100,000 borrowed. Though the amount may change over time, you’ll have to pay it throughout the loan.
Top Fun Things to Do Outdoors in St. Lucie County
With a population of 329,226 as of the 2020 census, St. Lucie County is a county in Florida with plenty of attractions and fun-filled recreational opportunities. Its county seat, Port St. Lucie, is home to a wide range of wildlife. If you are in the mood for memorable and exciting outdoor activities in St. Lucie County, here are few options to consider:
Immerse Yourself into the Beauty of Heathcote Botanical Garden
As a five-acre subtropical botanical garden in Fort Pierce, Heathcote Botanical Garden features plenty of native plants for your viewing. It encompasses a Children’s Garden, Native Plants Garden, Rainforest Display, Herb Garden, Reflection Garden, and teahouse, which hosts diverse plants as their names suggest.
The botanical garden boasts the most extensive public tropical bonsai collection in the country, with close to 100 bonsai trees displayed. Their themed garden rooms feature native plants, bromeliads, gingers, ferns, and tropical perennials. There are also workshops and programs for adults and children and dog-friendly spots on site.
Go Picnicking or Beachcombing at Fort Pierce Inlet State Park
Fort Pierce Inlet State Park is a park covering 340 acres with dunes and beaches that offer plenty of recreational opportunities. Besides being part of Florida’s State Park System, the park features a coastal hammock between Tucker Cover waters and the Atlantic Ocean.
The magnificent half-mile beach on Fort Pierce Inlet State Park is ideal for scuba diving, surfing, snorkeling, and swimming. You can find an angling spot for a fun-filled adventure along the southern end of the park. There are also trails for nature study, bicycling, and hiking about one mile north of Fort Pierce Inlet.
Take a Trip Through Hutchinson Island
Famed for its picturesque beaches, parks, and nature preserves, Hutchinson Island is a great place to visit in St. Lucie County, FL. The island has plenty of recreational opportunities if you are into water sports, history, culture, arts, and wildlife.
You can go on fishing excursions, shopping, surfing, and golfing on the island. There are also educational eco-tours and boat tours that can make the trip through the island memorable.
Engage in Water Sports at North Fork St. Lucie River Aquatic Preserve
This aquatic preserve offers recreational opportunities such as nature viewing, catch-and-release fishing, wakeboarding, and waterskiing. It’s also a hub for motor boating, kayaking, sailing, and canoeing.
You can learn about the ecology and biology of the aquatic preserve through the guided tours offered. The preserve also contains two public marinas, three public canoe stopovers, and five public boat ramps for easier water access.
Observe Florida’s Wetlands at the Riverwalk Boardwalk
Riverwalk Boardwalk is the perfect spot to view Florida’s wetlands. It features two paths leading through wooded mangroves, an observation deck, and a 10-foot wide boardwalk.
The boardwalk is constructed of recycled materials and features thermoplastic and lighting handrails. It is a popular fishing spot in the town’s center.
Summing up
USDA zero-down loans are a great solution if you can’t afford a down payment or have a low income. Once approved for the loan, you enjoy competitive interest rates and low mortgage insurance premiums. You can even use the loan to finance different types of properties, provided they are located in eligible locations.
(Mar 25, 2023)
