USDA loans have been around for quite a while, but still get little attention. That’s a shame because the USDA home loan program is perhaps the ideal option for those wanting to buy a home with no money down who are not VA eligible Veterans.
If you want to buy a home in Florida and want or need to come to the settlement table with as little cash as possible then a USDA loan should be one of your choices. What is the USDA home loan program and how can it be used?
The USDA loan is 100% financing and also offers some very competitive interest rates. The USDA loan is perfect for Florida first time buyers, but does come with a couple of requirements that must be met in order for a lender to process and approve a USDA loan request. The USDA loan must be used to finance a home located in an approved area. The USDA loan program is designed to finance those who want to purchase a home in a rural or semi-rural area.
This means the loan can’t be used in the immediate area of places like Miami, Orlando, Tampa, Jacksonville, etc. However, the outer lying areas of those cities may be in approved areas. For instance, while Tampa is largely considered a region not available for a USDA loan, many surrounding communities to the north in Pasco, or east Hillsborough may be. Buyers can find the USDA property map here. This tool will allow you to search by address to check a home’s eligibility. The map below shows all the darker shaded areas not approved
For those who are considering a USDA home loan one of the first things done is making sure the proposed property is in fact located in an approved region. If it is, the borrowers must also pass an income test as the program is also designed for middle to lower-income households. The USDA loan can be used to finance a property as long as the household income does not exceed 115% of the median income for the area.
It’s important to note here the gross household income is not used as there are some calculations your lender needs to apply to take into consideration certain withholdings but the 115% can point you in the right direction. Please see all the new USDA income limits here.
The USDA home loan is one of three that are considered “government-backed” loans. A government-backed loan is so-called because the lender is compensated for part or all of the loss should the lender be forced to foreclose on the property. With a USDA loan the lender is compensated at 100% of the loss. As with other government-backed loan programs, this compensation is financed with a form or mortgage insurance the borrowers pay.
The USDA guarantee has two forms of mortgage insurance, one that is rolled into the loan amount and one that is paid annually in monthly installments. The upfront fee that is rolled into the final loan was adjusted late last year and today is 1% of the sales price of the home. On a $150,000 loan, the upfront fee is $1,500 for a final loan amount of $151,500. As for the monthly insurance, this is calculated at .35% – please see the USDA mortgage calculator on this screen.
As long as the property is located in an approved area and the borrowers meet the income limits this loan program can be used by anyone who can qualify based upon credit, income and cash to close. If you want to finance a home and you’ve not heard of the USDA Rural Housing program, give us a call and we can explain all the requirements.