What are the advantages of a USDA Loan which offers 100% financing (if true) versus a conventional FHA loan with as little as 3% down to the BUYER.?

Asked by Angela, Webster, MA Thu Aug 29, 2013

Property is eligible for USDA Financing as it is in a "rural area"

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Thu Aug 29, 2013
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USDA doesn't require mortgage insurance paid monthly (although there is a financed funding fee paid at closing).

USDA is actually 100% financing, BUT: It is income restrictive. If you make too much money, you won't qualify. The USDA locations are usually so far away from a city that you need a flare gun so people can find you. USDA loans are more liberal when it comes to credit issues compared to FHA.

FHA has more programs available to low income qualifiers. FHA is not income restrictive but it is restricted to a loan size per county. Although USDA is not restricted to loan size, the restricted income limit restricts the loan size.

FHA is 3.5% down. Conventional lending is 5% down, unless you use Fannie Mae's 3% down program. FHA has a $100 down program ($1000 deposit and the difference refunded at closing).

FHA's mortgage insurance payments are stupidly expensive. I used to refer people to FHA but for an extra 1.5% down, might as well go conventional (unless credit score is below 660). Still though, most banks are moving to 640 minimums for FHA, making it harder to qualify for a loan. While there are the few that still do loans with 580 scores, the underwriting process is such that pulling your teeth out with a chisel and hammer is less painful than that process.

USDA's minimum score is 600. Understand that no matter what the guideline states of the entity, the bank can trump it with their own guideline.

Make sure that the loan officer you use is knowledgeable about USDA loans. They need to know if your income qualifies for the area.
0 votes
Jeri Patrick, Agent, Pooler, GA
Fri Feb 20, 2015
I would contact a local lender they can go over both loans with you and there advantages. Best of luck.
0 votes
Usda Mortgage…, , Jacksonville, FL
Wed Feb 18, 2015
Yes, USDA is 100% financing. Both USDA and FHA loans require monthly mortgage insurance as of 2015. The key benefit with USDA is the monthly mortgage insurance is about 40% less when compared to FHA loans. Even if you have 3.5% or 5% down payment ( the down payment to do FHA) take a closer look at USDA just for the mortgage insurance savings.

Serving all Fla & GA homebuyers, 7 days a week - http://www.UsdaMortgageSource.com
0 votes
Brian Nguyen, Mortgage Broker Or Lender, Mission Viejo, CA
Mon Feb 24, 2014
The one simple and key advantage for a USDA loan compared to an FHA is that a USDA does not require any down payment at all while the FHA does (even though it is still a small down payment.

Well I hope this helps! If you have any further questions or if you need a loan, feel free to contact me. Also, if you found this helpful please leave me a recommendation if you can!

Good Luck!

Brian Nguyen Sr.
Mortgage Banker
NMLS # 659743
Phone: 949.667.2887
brian.nguyen@nafinc.com
0 votes
Bill Eckler, Agent, Venice, FL
Tue Sep 3, 2013
USDA......the advantages are as stated.

However, there are a couple of things that need to be considered.

1. Not all locations are USDA approved. Be sure your target location qualifies!

2. There is an income ceiling that applies to the borrower

3. LUXURY items will not be financed. This means that anything considered to be extravagant would not be included in the financial package. I would recommend referring to USDA to determine exactly what they would consider a luxury.

4. Not all lenders and agents are familiar with these loans so I would be very careful to find one that is well versed in this specific product.

Hope this is helpful.

Bill
0 votes
Erin Slade, , Augusta, GA
Tue Sep 3, 2013
USDA financing is a great option, if the home you are interested in qualifies AND your Household income is below the guidelines for the area. The interest rate is typically slightly higher on USDA loans than FHA but because of the mortgage insurance on an FHA loan, your payment will be higher-so dont let the interest rate be a deterrant. Look at the total payment.
Many people would like to use the program in our area, but either the home is out of the required geographic location or the Household income is too high.
You can check with a mortgage lender that will be in the area you are looking to purchase in to see if a home you are interested in would qualifiy for the program. Or you can check in to it on your own at USDA.GOV. Not always the easiest site to navigate, but should also provide a contact phone number or email address for your area also.
FHA loans are very expensive today, unfortunately, so if you can save a little more than the 3.5% down payment and get to 5% down, I would do that if you cannot use the USDA program.
Rates are only going up so now is the time to move!

Erin Slade
NMLS# 1061440
Loan Originator
Georgia Bank & Trust Mortgage
3515 Wheeler Road
Augusta GA 30909
CELL: 706-533-6036
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