Yes, it is possible, you can still obtain 100% financing in Florida via the USDA 502 Guarantee Loan Program! The USDA mortgage program basics are the same for all states but local Florida experts will know how to quickly identify if the areas you’re shopping are eligible (this program can only be used in areas designated as rural by the USDA) Don’t assume your locations is not eligible without contacting us first. You will likely be surprised by some of the areas that are USDA eligible, so it is certainly worth exploring. If your household income must also be within the limits for your county (there are income limitations for the different versions of the program).
Below we will cover the basic information areas and eligibility along with some helpful information regarding each individual program so you can quickly identify which version is best for you.
- The USDA rural loan program is NOT a first time buyer program
- Contrary to popular belief, it is not restricted to first-time buyers only. First-time buyers are typically defined as a person who hasn’t owned a house in the last 3 years. You can use the USDA loan program if you’ve owned in the last 3 years, but you typically cannot own more than one home at a time. Some exceptions apply, such as a job relocation or owning a home in another area.
- The USDA loan program is a zero down, 100% loan program
- You can buy using the USDA program with no money down. What’s best is the affordable rates and low costs are not impacted by the size of your down payment. Whether you put down no money, or large down payment, the loan rate and government fees stay the same.
- The USDA is not for farm land and ranches.
- Many people mistake the USDA program as a farm loan. Not only is not a farm loan, you cannot use this program on an income producing property. It is for regular homes outside the highly-populated metropolitan areas. Many people don’t know that there are many more areas eligible for USDA around Florida’s major cities like Jacksonville, Tampa, Orlando, Sarasota, Lakeland, Tallahassee, Gainesville, etc.
There are two USDA programs, the Guaranteed program and the Direct program. The Direct program also has variations to it. Below we will cover specifics of the 502 Guaranteed program on this post.
USDA 502 Guaranteed Program
The Guaranteed program is offered by Florida approved USDA lenders only, not directly by USDA. It’s typically a 30-year fixed loan program that allows zero money down. The home buyer’s income must be equal or less than a pre-determined percentage of the median income in the area. If a home buyer’s income exceeds the limit, but has child care expenses, they can use the expenses to reduce their calculated income to qualify. Also, the income limit is based on the area and also size of the household, so a family of 6 can have a higher income than a family of 4 and still qualify. Here are some bullet points on this program:
- 30-year fixed loan with no money down
- Low rates (usually very similar to FHA or VA Mortgage rates)
- Flexible credit guidelines
- Income limits are around the average income of the area, so many will qualify
- There is no recapture fee (no penalty for selling the house)
- Offered by many lenders, so you can shop around and compare costs
- Lenders may be able to combine with state assisted programs, such as down payment assistance or SHIP funds.
A USDA Guaranteed buyer is usually defined as a person who makes the average/median income for the area and is looking to buy in a rural area. Since there are no restrictions on selling and you may qualify for other programs, I usually recommend this program if the buyer can afford a home using this program. The Direct program (which I will later discuss) has more restrictions on selling, so it’s usually best to use that program when needed only.
I think one of the most compelling features of the USDA loan is the low costs. The USDA charges an annual fee and upfront fee similar to FHA loans, but the costs are substantially less. Comparably, a home purchased on a USDA loan with no money down has a substantially lower payment than a FHA loan with 3.5% down using the same interest rate. Here is an example:
3.75% rate (NOTE: This rate is not the rate of today, just used for example below)
$3.5% or $7,000 down payment
$193,000 Base Loan Amount (Before the government adds their fees)
$196,377 Final Loan Amount with upfront Mortgage Insurance (1.75% FHA fee)
Principal/Interest Payment = $909.45
Annual Mortgage Insurance = $220.92 (1.35% of the loan amount)
TOTAL PAYMENT= $1,130.37
0% OR $0 DOWN PAYMENT
$200,000 Base Loan Amount
$204,081 Final Loan Amount with upfront Guarantee Fee (2% USDA Fee calculated slightly differently than FHA)
Principal/Interest Payment = $945.13
Annual Mortgage Insurance= $50.00
TOTAL PAYMENT= $995.13
Most loan programs will allow a home buyer to buy at higher debt-to-income ratios such as compensating factors. USDA is no different. If you’re buying a home built to newer, energy efficient code or have strong credit or assets, the USDA will allow you to buy a little more than the written debt-ratios state.
In summary, the USDA loan is $113.68 less per month while saving the home buyer $7,000 on a down payment! That’s a reduction of over 10% on the payment on a loan that has a much smaller down payment. There’s no question that any home buyer who’s considering FHA financing should look into the USDA Guaranteed program before they purchase even if they have the minimum required 3.5% FHA down payment. Remember, with the USDA program you are not required to go 100% financing, you can put down money if you like.
Links of interest:
USDA Eligibility Map Search: Approved Locations
USDA Income Eligibility Test:
USDA Program FAQ’s:
Need assistance? We are available to serve you 7 days a week. For fast service please submit the “Request Contact” form at the top right side of your screen. Be sure to also visit www.FiveStarsMortgage.com for the latest mortgage info. 2018