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I am considering a USDA loan for my first home purchase to avoid the PMI of a FHA loan. I've been reading about the USDA loans online and I can't determine any cons of going the USDA route?
Is there something I am missing?
How about when I plan to sell my home in the future? Any hitches there?
We applied for both a USDA and an FHA loan on a home we are purchasing. USDA interest rate offered was 5.5. FHA interest rate was 4.875.
USDA loan had a 2% USDA guarantee fee, and the lender's loan origination fee as well.
Best thing to do is ask your lender for a good faith estimate on both options, and then compare the two. You'll see what I'm talking about.
We chose the FHA, for the lower rate, and the fact that PMI was actually less than paying that 2% guarantee fee over the length of our loan.
How does that work out? For me, PMI would be about $70 a month. The USDA 2% roughly $170-180K home is about $3500. In this scenario, I would pay $3500 in PMI on an FHA loan in just over 4 years.
In my scenario, it would be much more cost efficient for me to go USDA in the long run. but I guess if USDA does have a higher interest rate, then it's just a matter of number crunching to see which option is the better value.
In my scenario, it would be much more cost efficient for me to go USDA in the long run. but I guess if USDA does have a higher interest rate, then it's just a matter of number crunching to see which option is the better value.
I was in a similar situation. The FHA interest was only like .25 points lower and then factoring in PMI I decided that the USDA was the way to go for me. The only caveats that I could see were stricter guidelines about income and where you can buy (i.e. must be rural area) but they're pretty lenient with their definition of "rural". Also if you were going the manufactured home route you could only purchase a new manufactured home not buy one already set up.
How does that work out? For me, PMI would be about $70 a month. The USDA 2% roughly $170-180K home is about $3500. In this scenario, I would pay $3500 in PMI on an FHA loan in just over 4 years.
In my scenario, it would be much more cost efficient for me to go USDA in the long run. but I guess if USDA does have a higher interest rate, then it's just a matter of number crunching to see which option is the better value.
Consider that you are financing that $3,500 over the length of your 30 year loan though. In the long run, the PMI may be cheaper for you. I know it was for us.
We applied for both a USDA and an FHA loan on a home we are purchasing. USDA interest rate offered was 5.5. FHA interest rate was 4.875.
USDA loan had a 2% USDA guarantee fee, and the lender's loan origination fee as well.
Best thing to do is ask your lender for a good faith estimate on both options, and then compare the two. You'll see what I'm talking about.
We chose the FHA, for the lower rate, and the fact that PMI was actually less than paying that 2% guarantee fee over the length of our loan.
You do know that FHA requires an upfront mortgage insurance premium of 1.75% in addition to the monthly mortgage insurance and just like the USDA guarantee fee it's rolled into the loan, right?
Takes place for FHA case numbers assigned on/after April 5th
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