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My husband and I are buying a builders spec home in Lafayette, IN for $115,000. The home is in a new community that qualifies for USDA loans. We have been pre-approved for a FHA mortgage through Bank of America & a local mortgage broker. FHA was the mortgage we were planning on taking until we found this house. Now we are torn between the two and are unsure on which one would benefit us now & in the long run.
Our objective – To use the least amount of money up front as possible, and maintain a total housing payment of less than $780 a month. (Interest rates quoted range from 5.125% to 5.5% & Taxes = $600yr & Home Ins. = $595yr)
I don’t know much about the loans offered by the USDA but what I have learned is…..
*No money needed for a down payment – 100% financing
*Manual Underwriting through approved lenders – It can take up too two weeks to be fully approved
*No Private Mortgage Insurance
*Closing costs can be added to mortgage as long as the home appraises higher than purchase price –
*Higher Closing costs – Guaranteed loan fee for lenders to process loan is 2% of the total purchase price & lenders pass this fee to the buyers at closing
Any help with this is greatly appreciated! =)
Thanks,
Bre
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3 Responses to Which mortgage loan is better: FHA or Rural Development’s Guaranteed Home loan?
sassy25
March 4th, 2010 at 1:57 pm
Go with the FHA rolling your closing costs into the loan is ridiculous.
Your adding too much debt with 100% mortgage and no way will the monthly payment with interest, principle, taxes and insurance be below 780
mccray_51
March 4th, 2010 at 2:24 pm
According to your objective it would be the Rural Housing USDA. This program is a 100% LTV (loan to value), no MI with rates usually comparable to FHA.
Now with that being said your the loan fee is charged to you at the beginning of the loan. Your loan amount will have an add on of 2% giving you an actual LTV of 102%. The seller can pay closing fees up to 6%.
This program carries some strict guidelines. You have an income max, also back end debt ratio max of 42%. Other than the current turn time for approval (which is now two weeks) it is a great program for those who don’t have the down payment or which to hold on to their down payment.
Good luck to you both
godged
March 4th, 2010 at 2:55 pm
I haven’t done many transactions with USDA loans, but there is a recapture built in there when you sell. Be sure to check that out in the course of making your decision.