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Old 01-04-2010, 02:15 AM
 
8 posts, read 62,895 times
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Hello,

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?

Is the interest rate higher with a USDA loan?

What else am I missing?

I appreciate any feedback you may have.

Thank you.
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Old 01-04-2010, 12:51 PM
 
51 posts, read 285,392 times
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The interest rate is a little higher (approximately a point), and the USDA tacks on a 2% fee to your loan.
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Old 01-04-2010, 02:30 PM
 
8 posts, read 62,895 times
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Quote:
Originally Posted by Stacie30 View Post
The interest rate is a little higher (approximately a point), and the USDA tacks on a 2% fee to your loan.

I heard that the interest rate on a USDA loan is actually less, like a VA loan. Is that incorrect?

Is the 1% Loan Origination Fee still applicable on a USDA Loan as well?
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Old 01-04-2010, 03:24 PM
 
51 posts, read 285,392 times
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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.
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Old 01-08-2010, 01:02 AM
 
8 posts, read 62,895 times
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Quote:
Originally Posted by Stacie30 View Post
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.
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Old 01-08-2010, 07:41 AM
 
182 posts, read 805,531 times
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Quote:
Originally Posted by rob stolen View Post
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.
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Old 01-13-2010, 11:28 AM
 
51 posts, read 285,392 times
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Quote:
Originally Posted by rob stolen View Post
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.
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Old 02-05-2010, 11:54 AM
 
Location: Lending in all 50 states
189 posts, read 743,646 times
Reputation: 109
Quote:
Originally Posted by Stacie30 View Post
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?
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Old 02-05-2010, 12:49 PM
 
Location: Salem, OR
14,560 posts, read 35,029,876 times
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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.
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Old 02-05-2010, 04:14 PM
 
Location: Lending in all 50 states
189 posts, read 743,646 times
Reputation: 109
Takes place for FHA case numbers assigned on/after April 5th
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