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

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Valued Member

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

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.


Message 1 of 15
14 REPLIES 14
Regular Contributor

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

Really, the only con I can think of with a USDA loan is if you have extra reserves saved up that you were planning on using for downpayment that you decide to keep because USDA allows 100% financing (in other words, you decide to finance more just because you can).

 

If you're willing to live in a USDA-qualifying area and you meet the income requirements, I just can't see any other downsides to it.

 

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.

 

From everything I've seen, the USDA rates have been comparable to FHA.

 

Good luck.

Message 2 of 15
Senior Contributor

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

the biggest issue is location.

 

Next, I believe, is DTI.  I could be wrong, but I think they are fairly strict on DTI.  With FHA you can get exceptions if there are extenuating circumstances that give reason for higher DTI.

 

There may or may not be a few hoops to jump through as far as homeowners classes and such.  I do not know this one way or another.

 

Last, you may have less choices as far as companies that do USDA loans in your area.

 

None of these are big issues really and may or may not come in to play at all.  If you are pushing DTI limits, that may be the only real downside... 

Message 3 of 15
Frequent Contributor

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

USDA is stricter on credit than FHA. USDA is also much stricter on DTI then FHA. USDApretty much has guidelines set and there are no exceptions. Where as FHA will make exceptions on just about everything as long as it makes sense. This is all new in the past 2-3 months or so. USDA used to be easier to qualify for than FHA, but not anymore.

 

Income and property also have to qualify.

 

If you can qualify its supposed to be the best loan out there, but its a very small box to fit in for qualification.

Message 4 of 15
New Contributor

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

We did USDA RD December 2008, couldn't have been easier and would suggest it to anyone who can fit in the box for elligibility. It probably helped that my mother in law is a licensed realtor and ex loan officer with lots of old loan officer friends familiar with USDA financing. We were truely fortunate, though we did miss out on the 8k cash in your pocket, and got stuck with the 7.5k loan. bleh.
Message 5 of 15
Valued Member

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

The only thing I have saw that I don't like is that USDA puts a cap on how much you can borry, it goes by your area, if I am wrong then someone please enlighten me before I use my VA loan, the cap for my area in Florida is $196,000, the house I am wanting is $219,900.
Message 6 of 15
New Contributor

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

Offer 196,000
Message 7 of 15
New Contributor

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

Going through this now.  I think my broker has already been taking most factors into consideration because I already had property in mind and it is well qualified.  The thing I'm having to watch out for is the income cap and the DTI.  They are VERY strict on DTI.  I was point blank told that if my back end goes .1% over, I will NOT get the loan.  Also, despite the fact that I'm financing on MY income alone, they WILL consider income of anyone who lives in the household as going against the income cap. 

 

Submitted our offer last night and am on pins and needles waiting to hear something.

12/09 - EQ 683, TU 696, however hubby's EQ is 599 - guess what we're working on next!
1/4/10 - EQ 700!
5/7/10 - Midline score = 712! Hubby's EQ is now 613 :-)
Message 8 of 15
Regular Contributor

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

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.
Message 9 of 15
Valued Member

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


@tleventer wrote:

Going through this now.  I think my broker has already been taking most factors into consideration because I already had property in mind and it is well qualified.  The thing I'm having to watch out for is the income cap and the DTI.  They are VERY strict on DTI.  I was point blank told that if my back end goes .1% over, I will NOT get the loan.  Also, despite the fact that I'm financing on MY income alone, they WILL consider income of anyone who lives in the household as going against the income cap. 

 

Submitted our offer last night and am on pins and needles waiting to hear something.


Tell us how it goes! Did you also apply for FHA?If so, what was the difference in interest rate between FHA & USDA?

Message 10 of 15
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