(Mar 25, 2023)
With federal government backing, USDA loans are suitable for low to moderate-income borrowers looking to buy homes in qualifying locations. They are part of USDA’s initiatives to improve rural areas with low homeownership opportunities.
A USDA loan can be convenient for your situation, provided you qualify. With the zero down payment requirement, the mortgage helps free up finances you can use to pay loan closing costs or even cater for moving expenses. If you are planning to use the loan to finance a home purchase in Washington County, FL, here’s everything to get you started with the loan process.
Are you a Hometown Hero? Find out your eligibility for the Hometown Heroes Loan Program in Washington County, Florida.
USDA Loans Defined
The US Department of Agriculture, abbreviated as USDA, operates to oversee forestry, ranching, and farming industries across the country. It also regulates aspects of food safety and quality as well as nutrition. But did you know that this government agency has a flagship loan program targeting homebuyers with low to moderate-income in eligible rural and suburban areas?
Also known as rural development loans, USDA loans seek to expand homeownership opportunities in underserved rural areas. They can be a convenient option if conventional loan programs can’t consider you for a mortgage due to your inability to raise a down payment or low income.
USDA mortgages aim to empower creditworthy homebuyers to realize their homeownership dreams. These loans finance the purchase of different types of homes across different parts of the country.
With a 100 percent financing option, a USDA home loan can help cover the purchase costs of a property. However, you need to have enough income to sustain the monthly loan payments. Though the loans are suited for first-time homebuyers, you can still apply if you don’t meet this requirement.
Pros of a USDA Zero-Down Loan
As government-backed home loans insured by the USDA, USDA home loans make homeownership less complicated for low to moderate-income borrowers. The loan process is pretty much straightforward and has less strict requirements. With that said, here are five pros of a USDA mortgage if you want to use it to fund a home purchase:
No Down Payment Required
It’s no secret that one of the obstacles you may face when applying for a home loan is raising a down payment. Most private mortgage lenders cap the down payment at up to 20 percent of the loan amount.
The good thing with a USDA home loan is that you won’t have to make this payment. As a result, you can enjoy substantial upfront savings on your mortgage in the long run.
Affordable Mortgage Insurance
All low down payment home loans, USDA loans included, have a mortgage insurance requirement. This type of insurance helps shield the lender’s risk of offering you the loan.
USDA loans require an upfront guarantee fee and a yearly mortgage insurance premium. The premiums are relatively lower compared to other government-backed loans.
Reasonable Interest Rates
Conventional loans are usually unappealing to borrowers with low incomes since they charge high-interest rates. Unlike these mortgages, USDA home loans offer lower interest rates than the zero-down payment option. A low-interest rate means a low monthly loan payment and less interest paid.
Compatible with Gift Funds and Assistance allowed
Gift funds and assistance programs can help you cover loan expenses, such as closing costs. You can also turn to them if you wish to make a down payment on your USDA loan. Either way, applying for these financial incentives is less vigorous when enrolled in the USDA rural housing loan program.
Offers Financing to Multiple Property Types
The USDA loan program has a broad reach regarding home financing. It caters to purchases involving properties such as fixer-uppers, condos, manufactured homes, and single-family homes. You can also buy land with this loan, provided it is meant to accommodate a new construction home.
Income Limits for Zero-Down USDA Loans in Washington County, FL
Understanding how different types of USDA home loans work is essential before diving into their income requirements. As you shop for a USDA mortgage, you may consider either a Single-Family Direct Loan or a Single-Family Housing Guaranteed Loan.
For you to be considered for a SIngle-Family Housing Direct Loan, you need a meager income (about 50 percent to 80 percent of the median income in the qualifying area). Once you qualify, the loan will be disbursed by the USDA rather than a private mortgage lender.
On the other hand, your income should be about 115 percent of the area median income to stand a chance of getting approved for a Single-Family Housing Guaranteed Loan. The good thing about this mortgage option is that it boasts competitive interest rates and a zero-down payment option. You can also apply for the mortgage whether it’s your first time or not.
Qualifying Location
Specific location requirements apply to USDA loans since they increase development opportunities in eligible rural and suburban areas. In this case, you can only take the loan if the qualifying location falls into these categories:
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Has a maximum population of 10,000 and lies in a rural or open country area
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Severely lacks homeownership opportunities targeted at borrowers with low to moderate-income
- Has a maximum population of 20,000 but isn’t part of a Metropolitan Statistical Area
Based on these conditions, metropolitan counties and cities don’t qualify for USDA home financing. Check the USDA home loan map to see if the area where you plan to buy a property is eligible.
USDA Property Requirements
All properties under review for USDA home financing need to conform to specific property standards. If not, the loan won’t close as planned, and your homeownership journey may be pushed back a bit. The USDA property requirements include:
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Be your primary residence since investment properties and second homes are ineligible
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Have not less than 400 square feet and not more than 2,000 square feet (if it’s a residential property)
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Have a medium-sized acreage that can’t be subdivided or converted into a commercial property
- Meet USDA appraisal guidelines
Besides meeting these USDA property guidelines, the Property should have a safe structure with plenty of water and wastewater systems and proper functioning electricity and plumbing. It should also offer safe vehicle and pedestrian access and have adequate living space, hot water, heat, and sewage disposal systems. Other essential amenities include at least one bathroom, bathtub/shower, and toilet.
Credit Score and DTI Requirements for USDA Zero-Down Loans
Credit score and debt-to-ratio (DTI) requirements help lenders determine whether you are a creditworthy borrower. It’s, therefore, important to have your credit reports reviewed before considering a USDA mortgage. In the review process, be sure to correct any mistakes and dispute any false accounts appearing on your credit report to prevent being locked out of the loan process.
Generally, a credit score between 620 and 640 can increase your chances of being considered for a USDA home loan. Also, credit requirements vary with the lender. In this case, apply with multiple lenders and compare quotes to get favorable interest rates and flexible credit requirements.
What Debt-to-Income Ratio Do You Need?
Your debt-to-income ratio (DTI) helps lenders determine your financial ability to afford a USDA home loan. It usually reflects your gross monthly debts divided by your total monthly earnings. A DTI ratio of not more than 41 percent is perfect for a USDA loan.
Depending on the lender, you may be considered for the USDA loan with a higher DTI if other aspects of your finances are strong. These aspects include significant savings and an excellent credit score. Either way, try to clear your outstanding debt if your DTI is high to improve your chances of qualifying for the USDA loan.
USDA Loan Limits
Thanks to the low mortgage insurance premiums, competitive interest rates, and zero down payment requirements, USDA loans are attractive if you qualify. The other good thing about them is that you won’t be subjected to a loan limit except when taking a USDA Direct Loan.
Expect a loan limit of not more than $970,800 if the Property lies in a high-cost area or $336,500 if the Property lies in most parts of the country on a Direct Loan. Guaranteed Loans, which make up most USDA loans, don’t have a loan limit. However, your mortgage lender will decide the maximum amount of money you can afford to borrow by looking at your credit and ability to raise monthly loan payments.
Does PMI (Private Mortgage Insurance) Apply to USDA Loans?
Instead of PMI, USDA loans require you to pay mortgage insurance premiums in the form of an upfront guarantee fee and an annual mortgage insurance fee. However, this mortgage insurance requirement is the equivalent of the PMI requirement that conventional home loans require. The annual fee paid as mortgage insurance on a USDA loan protects private mortgage lenders and the USDA against potential losses brought by defaults or delinquencies.
Expect to pay a one-time upfront guarantee fee of up to one percent of your loan amount. The participating lender will also require you to pay an annual 0.35 percent fee in 12-month installments, which you can include in your monthly mortgage payments. They also allow you to include the one percent upfront amount in the total loan amount, even if it’s higher than the appraised value.
The Step-by-Step USDA Loan Process
As with other home loans, USDA loans have various procedures for applying, getting prequalified, getting approved, and closing on the loan. Though the entire process may be time-consuming, partly because of the USDA approval step, it’s worthwhile. Here’s what to know to have realistic expectations when considering a USDA loan:
Review Your Finances
You can apply for the loan with minimal debt, financial obligations, and good credit. Before applying, it’s important to check whether you are in a financial position to afford a USDA loan. Consider reviewing your credit score, expenses, and debt obligations.
Get Prequalified
Since only a USDA-approved lender can prequalify you for the loan, choosing a lender experienced with USDA mortgages is important. Getting a prequalification letter, which you can use to scout for USDA-eligible properties, isn’t guaranteed. However, be willing to submit any paperwork or information the lender asks of you.
Submit an Offer for the Property
A prequalification letter can help you review your property options. Once you pick a suitable one, don’t hesitate to make an offer. You can ask a real estate agent versed in USDA loans for help crafting a solid offer to entice the seller into giving you the Property.
Schedule an Inspection and Appraisal
The home must undergo a thorough inspection and appraisal before closing the loan. You have the mandate to choose an inspector to look for things such as pests and structural defects in the Property. As for the appraisal, it should be scheduled by your lender and done by a professional to compare the Property’s purchase price to the current market value.
Get a USDA Approval
Before submitting your loan application to the USDA for approval, the lender may ask you for additional documents. The paperwork may include bank statements, tax forms, or employment records. Respond to these requests promptly to avoid compromising the loan closing timeline.
The USDA must sign off your mortgage for it to be used in financing a home. Depending on the number of loan applications in the queue, it may take a few days to a few weeks to get the USDA approval.
Agree on a Convenient Closing and Funding Date
With USDA approval, you are now ready to arrange appropriate closing and funding dates with your lender. Expect to sign the final loan documents during the closing date. You should also expect the mortgage lender to disburse money to your account on the funding date, which is usually two days post-closing.
Top Five Fun Things to Do Outdoors in Washington County, FL
In the northwestern part of Florida, Washington County has parks, creeks, lakes, and plenty of outdoor adventure opportunities. Your options include RVing, camping, canoeing, freshwater fishing, geocaching, and shopping, as discussed below:
RVing and Camping
If you fancy slipping away from a busy urban area, consider checking out the vast camping areas across Washington County. These camping spots include Falling Waters State Park, which boasts boardwalk trails and beautiful natural sceneries.
You can also enjoy memorable RVing and camping experiences at Pine Log State Forest, a popular spot for hiking, picnicking and outdoor family reunions. Also, check out Seacrest Wolf Preserve to encounter and learn about wolves.
Canoeing, Diving, and Tubing
With more than 16,000 acres of freshwater, Washington County, FL, offers excellent canoeing, diving, and tubing opportunities. Econfina Creek, Choctawhatchee River, and Holmes Creek are perfect spots for paddle boarding, tubing, canoeing, and kayaking.
Washington County also boasts more than 29 boat ramps to improve your boating experiences. Throughout the canoeing or kayaking adventures, you enjoy views of lush tropical vegetation.
Fresh Water Fishing
Washington County has plenty of streams and lakes for catching different types of fish (including trophy bass). If you enjoy freshwater fishing, visit Econfina Creek Canoe Livery. Freshwater fishing licenses are also easy to obtain.
Geocaching
You may want to consider geocaching for a more fun-filled adventure suited for families and a group of friends. In this outdoor activity, you will be treasure hunting for hidden stashes of objects. The Washington County Heritage GeoTrail is the perfect spot for this type of game.
Shopping at Local Produce Markets
Local produce markets such as the Chipley farmers market, K & L Farms, and Main Street Market offer fresh fruits and vegetables from local farmers throughout the week. They also boast a friendly environment accommodating families, kids, and pets. These spots are perfect for sourcing ingredients for your next meal.
Summing up
Through its participating lenders, the US Department of Agriculture offers first-time and repeat home buyers a chance at homeownership without subjecting them to a down payment requirement. You may consider a USDA loan when looking to own a home in a qualifying location, provided you meet the loan requirements. Best of luck realizing your homeownership dreams with this type of home financing.
(Mar 25, 2023)
