Any Cons on a USDA Loan Compared to FHA?

[DMenscha]

Originally Posted by Stacie30

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.

DING DING DING........Winner winner chicken dinner.

There are pros and cons to any loan, nut as someone wise once said, "nobody rides for free" Either the front money is expensive or the back end is. Make the comparisons and figure out which one is best for you.

In addition, there is no PMI in FHA financing. the "P" stands for private. FHA has an upfront fee for mortgage insurance..

[dad2jules]

Rates and fees for a USDA or FHA loan should be the same from the same lender/ broker.
Right now in NC that is 5.0% with no origination or discount fees(points) just 3rd party closing costs(about $1500) + upfront MI, + escrow account deposit.

Now to compare the 2 loans that we've established that basics of the 2 we'll use $175k loan amount.

USDA has 2% upfront MI that equals $3500 and no monthly MI for a total of $3500 MI expense.

FHA has 1.75% upfront MI that equals $3062.50 + montly MI that equals .55% per year or $962.50 per year for a mminimum of 5 years or until you reach 78% equity based on original ourchase price but lets see where the best case scenario of only 5 years compares. 5 years at $962.50 = $4812.50 making the minumum MI expense for FHA $7875.00 including both the up front and the monthly.

Even if you were being charged slightly higher closing costs for USDA(which there is actually no reason for) it would still be best for you.

[aparis76]

I am buying a home and I am using USDA. The rate is cheaper than FHA and the PMI is way less than the PMI with an FHA loan. You only pay up until the 20% of the mortgage pay off is reached and it is rolled into the loan. For FHA you have to have more money upfront. USDA is not truly 0 down.. it is just way less down than FHA. If you are building the money you put into the building process is deducted at closing. That is also a perk. There are many areas that are top notch that cover the USDA area. I can't think of any cons. Anything that helps low income families to own within their income range is good. Just remember if you ever hit hard times, pay your mortgage. It is better not to pay credit cards etc. Then to have your home repo'ed.

[Brandon Hoffman]

Originally Posted by Silverfall

The FHA premium was just raised to 2.25%. I'm not sure when it takes effect.

The cons of the USDA loan are the limited places that it works. Make sure the area that you are looking in qualifies.

I'm assuming they are the same everywhere and there is no state to state variance, but I believe there is a recapture penalty on USDA that escalates for 5 years then de-escalates for 5 years. If you're not looking to stay in the home long term you may want to consider a conventional to avoid the funding fees.

[12green]

I have a USDA mortgage @ 1% interest over 35yrs. Now if I were to sell this house at what interest would I be paying back to USDA ?