$0 Down USDA Mortgage LoanThe USDA has a no money down program that many in Florida can take advantage of!
The Florida USDA Mortgage Home Buying Program:
In 1990 the Farm Bill enacted the USDA mortgage program to help develop rural communities with a 100% financing mortgage option. The USDA mortgage program can be used for existing block, frame, or modular homes, in Florida however you can not purchase an existing manufactured home set up with USDA financing. The program is truly a zero down loan program. USDA home financing has been a huge success in rural communities, making homeownership a possibility for those who otherwise would not be able to buy a home. It can be difficult for anyone to save up enough money for a down payment on a home, but this program alleviates that need. It’s not a first time home buyer program, but it’s very popular among first time home buyers.
Are There Still Closing Costs?
As with any mortgage though you will still have closing costs when purchasing a home. You can however negotiate with the seller to pay all or a portion of your closing costs. Closing costs can vary but they are usually around 3-5% of the sales price in Florida. This would include items like homeowners insurance for the first year and collecting for escrows for property taxes and insurance, among title charges and taxes. Unique to this program though, you can actually finance your closing costs if the home appraises for higher than the sales price. This feature makes the program extremely flexible for borrowers wanting to keep as much of their own cash in their pocket as possible. So for example if you are under contract for a new home for $200,000, but it appraises for $203,000, you can finance $3,000 of your closing costs. We don’t recommend this as a solid plan for getting closing costs paid for, but its a nice advantage to the program when it becomes an option.
How Much Credit History Do I Need?
The USDA loan program has flexible guidelines in regards to trade line history on your credit report. Its actually possible to document alternative tradelines like rent, car insurance, and phone bills to prove credit worthiness. If you are not reporting a credit score but you have alternative tradelines that can be documented you still may be able to qualify. but this program is not just for people with lower scores or less credit history!
You can’t just buy anywhere with USDA financing, there are geographic limitations. The program was created to help develop rural America but many areas that people might consider developed still have eligible locations for home buyers to be able to utilize the program. Depending on how rural your county is there may be more or less qualified areas. The USDA calculates area eligibility based on population density. You can search for eligible areas at the USDA property eligibility page. To search just accept the disclaimer and choose single family housing under property eligibility. From there you can type in an address or use the interactive map to zoom in and out to determine whether the area you are looking to buy is eligible. You can also reach out and we will provide a map of your area.
If you have any trouble with this just let us know, we would be glad to help you out. If you choose to exclusively use USDA financing then determining eligibility is crucial. It can be a challenge for some borrowers wanting to live close to a highly developed city but who also want to take advantage of the zero down program. You do have to be willing to live in a more rural community!
The program has household income limits designed to keep the program more available for households who need the financial benefit of purchasing with no money down program. Even though you may be the only one on the mortgage, the USDA will verify the income of the members in the household to make sure the income is under the limit. The typical household income limit for a USDA mortgage in Florida is about $110,650 for a household of 4 or less. That can be one person making $110,650 a year or 4 people combined. This figure can change from county to county depending on the median income of that county. For a household of 5 or more the household income limit is about $146,050. Certain deductions can be utilized to lower the calculation of the household income, including child care. If you’re household income is close to the limit we can help you figure out if you qualify.
The USDA is strict about income limits! You will not qualify if you make too much. If you are self employed the USDA calculates your income based on your net income, if you are an employee they calculate based on your gross income. If you have a parent living with you and that parent receives social security, we would need to include that income into the calculation for household income, even though they won’t be on the loan.
Can I Own A Home Already?
It is possible to own a home and use the program, but its a very unique situation where the USDA would allow this. Generally the program is for people who currently rent or live with family. There are a few cases however that could qualify. If you are retiring from up north and have your home for sale you could potentially use the program here in Florida if you qualify for both payments. If you have a disability that requires you to change your residence, for instance if its not wheel chair accessible then you could qualify for a USDA mortgage even if you own another home. Additionally if your home no longer has enough bedrooms to accommodate the size of your family then the USDA could allow you to use the program. If you currently have a USDA mortgage and want to buy another home with a USDA mortgage you can do this as long as you close on your current home before you close on the new home. The USDA program is not specifically a first time home buyer program but it’s well suited for first time home buyers.
580 Minimum Credit Score
Some lenders have higher credit score minimums, but if the debt ratios work we can get lower score deals done. The program does allow for you to qualify for a higher loan amount if your score is over 660 though. With scores between 580 and 640 a manual underwrite is typically required. With a manual underwrite the max your debt ratios can be are 29/41. That means your total housing payment (including taxes and insurance) has to be 29% or less of your monthly income, and your total monthly debt payments must be at 41% or less of your monthly income. Keep in mind with a score of 660 you are more likely to get what’s called a GUS approval which allows debt ratios up to a 31% front end and a 46% back end.
The government has a 1% funding fee for the Florida USDA mortgage program. So whatever your base loan amount is, it will increase by 1% to cover their fee to keep the program going. There is also a monthly factor of .35% for mortgage insurance. This is lower than FHA or most conventional mortgage insurance. It is calculated based on the principal owed, so as the principal reduces your mortgage insurance payment reduces as well. For example if you had a $100,000 loan your mortgage insurance would be $350 a year, and $29.17 a month. The mortgage insurance percentage on a USDA mortgage is the same no matter what your credit score is. With conventional financing its based on your credit score and down payment.
USDA Mortgage in Summary:
The USDA mortgage program in Florida is an excellent program for someone wanting to purchase a home. Its true for the first time home buyer or someone wanting to buy their 5th home. If the area you are looking to buy qualifies I always ask clients to consider it as an option. Its easy to think there is a disadvantage somewhere because you aren’t making a down payment but the truth is its hard to find a fault if there is one! Especially when compared to FHA financing. The program lets you buy a home for $0 down. If the home appraises for more than the purchase price it gives you flexibility to finance some of your closing costs. The mortgage insurance is low and the funding fee of 1% is low.
How Long Does it Take to Close a USDA Mortgage?
There is often an argument that USDA loans take longer to close but the truth is we get them closed just as quick as our other loans. Once we complete our underwriting process the file is sent to the USDA for their approval. This is done under the USDA guaranteed program not the USDA direct program. The USDA direct program has stricter income requirements. We do ask clients to get 40 days on their real estate contracts to close a USDA loan, but we are often getting them done within 30 days or less. When the file has completed the underwriting process and sent to the USDA, it typically takes a few business days to get back but if the USDA is backed up it can sometimes take longer. If you would like to apply for a pre-approval for a USDA loan just click on the link below and we would be glad to help. If you have further questions just let us know.
Get a No Hassle USDA Pre-Approval
A pre-approval is not an obligation, its just our way to review your file and let you know what you qualify for. With a pre-approval you can make offers on a home.