topic Re: Is my broker telling the truth? in Mortgage Loans

Is my broker telling the truth?

jcstarkey8826 — Tue, 10 Jul 2012 13:14:16 GMT

My broker seemed like he was trying to scare me away from USDA. I dont know why he would want to do so, but I told him the only reason we wanted USDA was because the area we were moving was eligible, and the 0% down was just icing on the cake.

He started off by saying that USDA is VERY slow, and warning me it can cause issues with sellers waiting on USDA to process everything. I said this was fine to us, as we are in no rush, and would like to let the sellers know when we make an offer that it is USDA (he said talk to the realtor about that) in hopes that they will understand it is a little slower and not get upset with the process.

Then he said that with USDA the govt could kick you out at the drop of a hat. If you missed one payment they could come in and pretty much do as they please. If you make a late payment by accident they will jack up your rate, and you have to keep track of all that live there and account for everyones income etc.

Im even ok with this, as our savings is enough to cover all bills if we both lost our jobs for six months, also when it comes to losing your house, we always have family to lean on and we try to be as prepared as possible. I dont ever anticipate a later payment either, but you never know... automatic payment screw up, lost check in the mail, etc. anything can happen.

So USDA borrowers... Is this true? Should I just go FHA like he is suggesting and just avoid it? Im a few months away from the pre-approval process and want to make sure Im doing whats best for us. We can do an FHA. Like I said, the 0% was just icing on the cake, but 3.5% down is fine with us as well if its a better option.

Thanks in advance!

Re: Is my broker telling the truth?

webhopper — Tue, 10 Jul 2012 13:18:53 GMT

@jcstarkey8826 wrote:
My broker seemed like he was trying to scare me away from USDA. I dont know why he would want to do so, but I told him the only reason we wanted USDA was because the area we were moving was eligible, and the 0% down was just icing on the cake.

He started off by saying that USDA is VERY slow, and warning me it can cause issues with sellers waiting on USDA to process everything. I said this was fine to us, as we are in no rush, and would like to let the sellers know when we make an offer that it is USDA (he said talk to the realtor about that) in hopes that they will understand it is a little slower and not get upset with the process.

Then he said that with USDA the govt could kick you out at the drop of a hat. If you missed one payment they could come in and pretty much do as they please. If you make a late payment by accident they will jack up your rate, and you have to keep track of all that live there and account for everyones income etc.

Im even ok with this, as our savings is enough to cover all bills if we both lost our jobs for six months, also when it comes to losing your house, we always have family to lean on and we try to be as prepared as possible. I dont ever anticipate a later payment either, but you never know... automatic payment screw up, lost check in the mail, etc. anything can happen.

So USDA borrowers... Is this true? Should I just go FHA like he is suggesting and just avoid it? Im a few months away from the pre-approval process and want to make sure Im doing whats best for us. We can do an FHA. Like I said, the 0% was just icing on the cake, but 3.5% down is fine with us as well if its a better option.

Thanks in advance!

This doesn't sound accurate, I would check with a different broker or lender before you accept his word as truth. Its likely that he gets a better compensation for FHA than he does with USDA.

Re: Is my broker telling the truth?

jcstarkey8826 — Tue, 10 Jul 2012 13:52:12 GMT

Thats what Im afraid of. I just want accurate answers and he didnt seem too confident in what he was saying. It seemed like scare tactics.

He works with 620 mid score, and if myfico calculator is anywhere close to accurate, I should be around 650-660 in 3 months. I want to work with someone who uses 620 mid just to be safe. I will get my score as high as possible obviously, but Id rather be safe knowing the inqs shouldnt drop my scores below 620, but with 640 im not sure. So far he is the only person ive contacted that can work with 620 mid, but ive only called a few brokers. So maybe i'll keep checking around and try to find someone working with 620 mid and see if they are more helpful and encouraging? or maybe USDA isnt really the best option for me lol I have no clue

Re: Is my broker telling the truth?

Anonymous — Tue, 10 Jul 2012 13:30:40 GMT

What's the lowest the other brokers would work with?

Re: Is my broker telling the truth?

webhopper — Tue, 10 Jul 2012 13:31:51 GMT

USDA Loan vs FHA Loan Total Cost Of Ownership

***UPDATED FOR APRIL 2012 FHA CHANGES***
Assuming the following -

$300k purchase price and 300k appraised value
4% fixed interest rate on a 30 year fixed loan
Home is located in an USDA Eligible Area

Loan Type

Down Payment

Monthly Mortgage Insurance

Location Restrictions

Income Limits

Loan Limits

Minimum Credit Score

Loan Types

Up Front Mortgage Insurance

USDA

0%$

.0.3%

Yes

417k

620*

Only 30yr Fixed

FHA

3.5%

1.25%

Location Specific

620*

Too many to list…

1.75%

* Minimum credit scores are set by the lender

Length- 30yr | Rate- Fixed 4%

Up-Front Mortgage Insurance

Down Payment

Total Loan Amount Financed

Monthly Mortgage Insurance

Monthly Payment – Principal + Interest + MIP

Amount paid in monthly payments after five years

Total $$$ spent after five years

Amount owed after five years

USDA

$6,000

$306,133

$76.50

$1538

$92,280

$92.280

$276,890

FHA

$5,250

$10,500

$294,566

$306.84

$1,713

$102,480

$113,280

$266,428

USDA – total of $92,280 out of pocket over five years and still owe $276,890. If the house sold for net 300k you would profit $23,110

Subtract the profit $23,310 from the expense $92,280

Total Cost Of Ownership Is = $68,970

FHA- total of $113,280 total out of pocket over five years and still owe $266,428. If

FHA vs USDA loan

the house sold for net 300k you would profit $33,572

Subtract profit $33,572 from the expense $113,280

Total Cost Of Ownership Is = $79,708

Difference – USDA Loan is about $10,738 cheaper after five years

That might not seem like a ton of money however considering you save $175 per month and the fact that you dont have to come up with 10k+ for down payment + closing costs, it makes USDA a clear winner over FHA.

Re: Is my broker telling the truth?

webhopper — Tue, 10 Jul 2012 13:34:48 GMT

USDA is a good option, if your current broker won't work with you, tell him you'll walk and find someone who will. Mortgage folks are a dime a dozen and I believe that this guy has ulterior motives for steering you towards an FHA loan. FHA loan is probably one of the more expensive loan types to have. Conventional loans and USDA are better in my opinion. FHA is great for homes for first time homebuyers who are buying in a location not supported by USDA.

Re: Is my broker telling the truth?

tooleman694 — Tue, 10 Jul 2012 13:39:46 GMT

I have spoken with a few brokers about USDA and everyone tell me to run away. They say go FHA or Conventional.

I really wanted USDA, but conventional is the next cheapest option.

Re: Is my broker telling the truth?

jcstarkey8826 — Tue, 10 Jul 2012 13:44:09 GMT

@webhopper wrote:
USDA Loan vs FHA Loan Total Cost Of Ownership
***UPDATED FOR APRIL 2012 FHA CHANGES***
Assuming the following -
$300k purchase price and 300k appraised value
4% fixed interest rate on a 30 year fixed loan
Home is located in an USDA Eligible Area
Loan Type

Down Payment
Monthly Mortgage Insurance
Location Restrictions
Income Limits
Loan Limits
Minimum Credit Score
Loan Types
Up Front Mortgage Insurance
USDA

0%$
.0.3%
Yes
Yes
417k
620*
Only 30yr Fixed
2%
FHA

3.5%
1.25%
No
No
Location Specific
620*
Too many to list…
1.75%
* Minimum credit scores are set by the lender
Length- 30yr | Rate- Fixed 4%

Up-Front Mortgage Insurance
Down Payment
Total Loan Amount Financed
Monthly Mortgage Insurance

Monthly Payment – Principal + Interest + MIP
Amount paid in monthly payments after five years
Total $$$ spent after five years
Amount owed after five years
USDA

$6,000
$0
$306,133
$76.50
$1538
$92,280
$92.280
$276,890
FHA

$5,250
$10,500
$294,566
$306.84
$1,713
$102,480
$113,280
$266,428
USDA – total of $92,280 out of pocket over five years and still owe $276,890. If the house sold for net 300k you would profit $23,110
Subtract the profit $23,310 from the expense $92,280
Total Cost Of Ownership Is = $68,970
FHA- total of $113,280 total out of pocket over five years and still owe $266,428. If

FHA vs USDA loan
the house sold for net 300k you would profit $33,572
Subtract profit $33,572 from the expense $113,280
Total Cost Of Ownership Is = $79,708
Difference – USDA Loan is about $10,738 cheaper after five years
That might not seem like a ton of money however considering you save $175 per month and the fact that you dont have to come up with 10k+ for down payment + closing costs, it makes USDA a clear winner over FHA.

That seems like a lot of money! lol Im extremely frugal accoring to my GF, but to me if it saves me money in the long run, Im in. I dont know enough about the USDA program to know if he was accurate or not, but it just seemed pressured. I'll call around some more and see if anyone can work with 620 and is nice about it.

Anyone in the Michigan area that knows of anyone PM me.

and rican, most are wanting 640, which is fine if I have to, but I would prefer someone with more breathing room.

Re: Is my broker telling the truth?

jcstarkey8826 — Tue, 10 Jul 2012 13:48:03 GMT

@webhopper wrote:
USDA is a good option, if your current broker won't work with you, tell him you'll walk and find someone who will. Mortgage folks are a dime a dozen and I believe that this guy has ulterior motives for steering you towards an FHA loan. FHA loan is probably one of the more expensive loan types to have. Conventional loans and USDA are better in my opinion. FHA is great for homes for first time homebuyers who are buying in a location not supported by USDA.

Unfortunately I dont have the score needed for conventional or the 20% down. USDA is where I was hoping to start.

Re: Is my broker telling the truth?

webhopper — Tue, 10 Jul 2012 14:25:59 GMT

@jcstarkey8826 wrote:
@webhopper wrote:
USDA is a good option, if your current broker won't work with you, tell him you'll walk and find someone who will. Mortgage folks are a dime a dozen and I believe that this guy has ulterior motives for steering you towards an FHA loan. FHA loan is probably one of the more expensive loan types to have. Conventional loans and USDA are better in my opinion. FHA is great for homes for first time homebuyers who are buying in a location not supported by USDA.
Unfortunately I dont have the score needed for conventional or the 20% down. USDA is where I was hoping to start.

Conventional is possible with 680 mid score and 5% down.... If you want to go USDA its worth interviewing other brokers... even if they aren't local.

Re: Is my broker telling the truth?

jcstarkey8826 — Tue, 10 Jul 2012 14:32:08 GMT

@webhopper wrote:
@jcstarkey8826 wrote:
@webhopper wrote:
USDA is a good option, if your current broker won't work with you, tell him you'll walk and find someone who will. Mortgage folks are a dime a dozen and I believe that this guy has ulterior motives for steering you towards an FHA loan. FHA loan is probably one of the more expensive loan types to have. Conventional loans and USDA are better in my opinion. FHA is great for homes for first time homebuyers who are buying in a location not supported by USDA.
Unfortunately I dont have the score needed for conventional or the 20% down. USDA is where I was hoping to start.
Conventional is possible with 680 mid score and 5% down.... If you want to go USDA its worth interviewing other brokers... even if they aren't local.

OH! I wasnt aware of that. I thought I needed a 720 and around 30k lol well if USDA doesnt work out and conventional is cheaper it might just be worth waiting for conventional. Ill call around and see. Ive talked to very helpful people, but have needed 640s, and helpful people that use 620, but dont do USDA. So maybe I'll find helpful, 620, USDA haha. If not I can always wait.

Re: Is my broker telling the truth?

jules0580 — Tue, 10 Jul 2012 14:52:09 GMT

Not all brokers are approved to do USDA. So its possible your broker is not authorized so is trying to sway you to FHA so he can keep your business.

Re: Is my broker telling the truth?

tooleman694 — Tue, 10 Jul 2012 15:12:19 GMT

Actually you can go conventional these days with a 660 and 5 percent down or a 680 with 3 percent down.

Re: Is my broker telling the truth?

webhopper — Tue, 10 Jul 2012 18:04:19 GMT

@tooleman694 wrote:
Actually you can go conventional these days with a 660 and 5 percent down or a 680 with 3 percent down.

Oh wow, when did they start doing that? I closed on my home in January.

I know every lender has different risk analysis programs, and different overlays... that's one of the reasons why my file was declined by 4 lenders before I finally got approved for a 20 yr mortgage. The 20 yr bumped the risk down to make it more acceptable. The fact that I already had a house that I wasn't going to sell made it more difficult from an underwriting perspective.

Main problem is getting MI company to sign off on the file.

Re: Is my broker telling the truth?

Booner72 — Wed, 11 Jul 2012 01:28:52 GMT

OP: have you read on this sight how many people are getting USDA loans and being successful? Why don't you wait 20 more points and get this loan since it is such a better option, though I'm certain you can find a lender who will do 620 AND USDA (Try Academy Mortgage).

Just keep researching.

Re: Is my broker telling the truth?

Anonymous — Wed, 11 Jul 2012 04:16:11 GMT

We went USDA guarenteed in Oregon. Preapproval in the loan office to walking in the front door of my new house, 5 weeks. We had a TON of conditions that we had to meet and we still did it. The key for us was an EXCELLENT loan officer and a wonderful real estate agent. They worked hard for us and got everything done and to the USDA for approval one schedule. I called the office and learned they were only about a week behind at the time. Bam! Walking into my house. Truly, 5 weeks start to finish. It can be done in a fair amount of time, you just need a lender who knows USDA.

Re: Is my broker telling the truth?

thankfulheart — Wed, 11 Jul 2012 08:20:01 GMT

@webhopper wrote:
USDA Loan vs FHA Loan Total Cost Of Ownership
Length- 30yr | Rate- Fixed 4%

Monthly Mortgage Insurance

Monthly Payment – Principal + Interest + MIP
USDA

$76.50
$1538
FHA

$306.84
$1,713
Difference – USDA Loan is about $10,738 cheaper after five years
That might not seem like a ton of money however considering you save $175 per month and the fact that you dont have to come up with 10k+ for down payment + closing costs, it makes USDA a clear winner over FHA.

I see the math differently, particularly if you are planning to live in the home LONGER than 5 years (as I am). After 5 years, the monthly payment on the above drops to $1406, $132 LESS than the USDA payment which continues level until the home is PIF. Fancy math aside, you are saving approx $30K over the life of the loan with FHA. You are also not starting out upside down.

I have read articles about USDA collection tactics which is another reason I finally felt better about having to steer to FHA (for other reasons). Here's an article: http://blogs.cfed.org/cfed_news_clips/2012/05/usda-is-a-tough-collector-when.html

If you can come up with the downpayment, I think FHA is a better way to go. Believe me, I'd have rather kept my 3.5%, too, but I think that may have been short-term thinking for a long-term commitment.

Re: Is my broker telling the truth?

jcstarkey8826 — Wed, 11 Jul 2012 13:15:35 GMT

@thankfulheart wrote:
@webhopper wrote:
USDA Loan vs FHA Loan Total Cost Of Ownership
Length- 30yr | Rate- Fixed 4%

Monthly Mortgage Insurance

Monthly Payment – Principal + Interest + MIP
USDA

$76.50
$1538
FHA

$306.84
$1,713
Difference – USDA Loan is about $10,738 cheaper after five years
That might not seem like a ton of money however considering you save $175 per month and the fact that you dont have to come up with 10k+ for down payment + closing costs, it makes USDA a clear winner over FHA.
I see the math differently, particularly if you are planning to live in the home LONGER than 5 years (as I am). After 5 years, the monthly payment on the above drops to $1406, $132 LESS than the USDA payment which continues level until the home is PIF. Fancy math aside, you are saving approx $30K over the life of the loan with FHA. You are also not starting out upside down.

I have read articles about USDA collection tactics which is another reason I finally felt better about having to steer to FHA (for other reasons). Here's an article: http://blogs.cfed.org/cfed_news_clips/2012/05/usda-is-a-tough-collector-when.html

If you can come up with the downpayment, I think FHA is a better way to go. Believe me, I'd have rather kept my 3.5%, too, but I think that may have been short-term thinking for a long-term commitment.

I can do the 3.5% downpayment. thats not an issue. I just figured since the house was eligible, why not? I just want to do the best financial option I have. I do plan on living there for over 5 years as well obviously. So I'll keep researching and trying to figure out what my best option is.

I have a really good friend that is a loan officer and works with 620, but he doesnt do USDA. So I'd have to go FHA, which is fine. If having someone that is there to help me and doing whats best for me along the way is such an important factor, I might go that route.

Thanks for everyones input, I have a few months to figure this all out, but everyone helps me understand everything so much better. its really appreciated!