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Any Cons on a USDA Loan in General? or Compared to FHA?

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RobSteal
Valued Member

Re: Any Cons on a USDA Loan in General? or Compared to FHA?


@hawkeye33 wrote:
Are you trying to go USDA Direct loan program or Guaranteed? I don't think there is a loan limit on the Guaranteed program (I may be wrong). I financed through USDA Guaranteed in Nov. 2009 in Iowa, and my loan amount was $198,000, and I find it hard to believe the max loan amount would be more in Iowa than in Florida. Direct loan program is for low income, but the Guraranteed program is still a great deal and requires no PMI/down payment.

 

I am going Guaranteed. I make just under the cap of the Guaranteed threshold. My DTI is in line with USDA requirements as well. I do plan to put a down payment down regardless, however, the elimination of PMI is very attractive for USDA. In my case, it would be about $70-$80 a month.

 

On the other hand, on a USDA loan, you DO have to pay a 2% fee on the price of the home to go USDA route. I've also been told that the interest rate on a USDA loan is higher than FHA.  Is this always true or just based on which lender you go with?

 

I plan on staying in this particular home at least 3 to maybe 5 years max. I haven't applied yet, but I would need to do the math to detrmine if 3-5 yrs of a roughly $70-$80 monthly PMI would be more cost effective than an extra 2% on the price of the home for the USDA loan. And from what people are telling me, a USDA loan has higher interest rates than FHA.

 

I guess I just have to apply for both and do some major number crunching for my specific situation.

 

Anybody apply for both FHA and USDA and receive significantly different interest rates? 

Message 11 of 15
hawkeye33
Regular Contributor

Re: Any Cons on a USDA Loan in General? or Compared to FHA?

You would have to check with lenders on rates, but I did lock in at 4.875 (which I bought down from 5.0%), and that seems to be in line with the FHA rates I've seen throughout fall of 2009. If USDA averages a higher rate than FHA, it can't be by much.

 

With you knowing that you'll want to move again in 3-5 years, don't forget about the advantage I mentioned regarding future buyers being able to apply and assume the terms of your loan. That could be a huge selling factor if rates jump significantly in the next 3-5 years, being able to put a house on the market at 5% when everyone else is locking in significantly higher.

 

It looks like if you buy something in the $200K - $250K range and you stayed for 5 years, the USDA fee and the PMI you are avoiding would be mostly a wash (comes down to $67 - $83 per month over 60 months). If you're staying less time, you might save money going the PMI route.

Message 12 of 15
Anonymous
Not applicable

Re: Any Cons on a USDA Loan in General? or Compared to FHA?


@hawkeye33 wrote:

 

As far as selling in the future, you do have to stay for (I believe) three years. But aside from that, USDA actually can be EASIER to sell. Check for sure with your loan officer, but my USDA mortgage allows me to sell and have the USDA-backed terms inherited by the purchaser. So in other words, 10 years down the road, if I wanted to sell my house, and the current rate was 8%, I can offer buyers 4.875% (my locked rate). So it can be a real benefit if you do want to sell somewhere down the line.


FHA loans can be assumable also (in the interest of having all the pieces you need to decide, I personally think they're both good products).  A bigger question in my mind would be why you're planning to buy if you're planning to move in 3-5 years.  Buying and selling can be so expensive if you're not staying for the long haul.

Message 13 of 15
Anonymous
Not applicable

Re: Any Cons on a USDA Loan in General? or Compared to FHA?

I purchased a home last April with the USDA program and I couldn't be more happier. The home I purchased cost 374k which originally sold for 850k in 2007. There were some hoops that I had to jump but in the end it was well worth it. My question is after 3-5 years can I sell my home to someone that can lock in my same USDA Interest rate (5.25%) if the home appraises for more than the USDA property value limit?
Message 14 of 15
Anonymous
Not applicable

Re: Any Cons on a USDA Loan in General? or Compared to FHA?

For the folks mentioning about USDA being strict on DTI, this is directly from the USDA guidelines document:

 

 


  (Ratios above 29/41% can be exceeded with above average credit scores)

 

 

 Above average is 620+ and you can get even less stricter adherence to DTI with 680+.     This is in line with what my LO told me.  He told me my front end was 23% but even if it was over 29% he would be able to get it to work because of my "above average credit score".

 

Message 15 of 15
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