Mortgage Question: USDA vs Conventional

Discussion in 'Off Topic' started by Pablo, Mar 17, 2011.

  1. Pablo

    Pablo Junior Member

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    I am about to purchase a home, and I have 20% down.

    First the facts:
    Purchase price on home: $205,000 (3% closing costs paid for)
    Down payment: $41,000

    Due to my (lack of) substantial credit history, I don't qualify for best rate for conventional.

    Here's my options:
    USDA: Finance just under $170,000 (USDA loans have a funding fee)
    Rate is 4.75% (30 year)

    Conventional: Finance $164,000
    Rate is 5.125% (30 year)

    Payments are within $10 of each other. I'm leaning towards the conventional, but for some reason the guy pitching the USDA is saying I will be saving money when I go to sell the house in 10 years. I can't make that math work.

    Any help?

    Pablo
     
  2. OCGuy

    OCGuy Lifer

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    I would not finance a 3.5% funding fee into the loan, which is what USDA charges.

    5.125 at todays rates, he is making some serious back-end rebate if you have anything over a 680 middle FICO. He could possibly make more money on the back end at 4.75 on the USDA loans.

    If you are planning on keeping the loan for 30 years, the lower rate keeping more money in your pocket (USDA) would be the better choice though.
     
  3. olds

    olds Elite Member

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  4. Patranus

    Patranus Diamond Member

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    Why is the USDA giving out mortgages?

    (No wonder this country is broke)
     
  5. Pablo

    Pablo Junior Member

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    I'm in the 660 range. The loans are being pitched by two different people. Broker is pitching USDA, bank is pitching conventional.
     
  6. Pablo

    Pablo Junior Member

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    I asked myself the same thing. Promoting Urban Sprawl?
     
  7. Cal166

    Cal166 Diamond Member

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    The Government is reallocating resources around, like ICE and DHS shutting down the internet?
     
  8. OCGuy

    OCGuy Lifer

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    What state might I ask?
     
  9. olds

    olds Elite Member

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    Me? State of Confusion. USDA?
     
  10. Pablo

    Pablo Junior Member

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    SC
     
  11. JS80

    JS80 Lifer

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    Bulk prime mortgages?
     
  12. OCGuy

    OCGuy Lifer

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    They provide loans in "rural" areas that allow less than 20% down with no mortgage insurance at good rates.
     
  13. BoomerD

    BoomerD Lifer

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    http://www.rurdev.usda.gov/rhs/

    http://www.amerisave.com/usda-loans

    "USDA home loans are offered in rural areas as determined by the United States Department of Agriculture (USDA). The USDA’s mission is to help lower income households obtain home loans at reasonable mortgage rates. USDA home loans offer many advantages to qualified borrowers.

    USDA mortgage loans allow for purchase and no cash out refinances of primary residences (that already have USDA financing). Some benefits of USDA are:

    * 100% financing
    * No monthly mortgage insurance
    * No asset or automatic reserve requirements with an automated underwriting approval.
    * Gifts allowed for closing costs

    Eligible USDA property types are single family homes and condominiums. USDA does have some income and property eligibility requirements.

    Even though a mortgage insurance premium is not required, USDA charges a 3.5% funding fee to guarantee the mortgage. This fee may be financed into the loan amount."
     
  14. olds

    olds Elite Member

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  15. Pablo

    Pablo Junior Member

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    Planning on only keeping it 7-10 years. Would conventional be better? I'm calculating it would be, but just wanting a third opinion.

    If the numbers I am running are correct, I'm better off with the conventional until month 314.
     
  16. BoberFett

    BoberFett Lifer

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    Alternator sized?
     
  17. nanobreath

    nanobreath Senior member

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    Trust your numbers. He is probably pushing the USDA loan harder because he makes a good commission off of it, especially since the other loan you are considering isn't through him. He wants to make money. The only way the USDA loan would be better is if you planned on staying in the house for the entire life of the loan without paying it off early.
     
  18. darkxshade

    darkxshade Lifer

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    I get mine from the DOD.
     
  19. MikeMike

    MikeMike Lifer

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    Mwahahaha, I caught the lurker!!!
     
  20. nanobreath

    nanobreath Senior member

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    Holy shit, I didn't even notice. That is some epic lurking.
     
  21. MikeMike

    MikeMike Lifer

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    he had made FIVE posts prior to that one...
     
  22. edro

    edro Lifer

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    I tried to get a USDA loan, but as soon as I applied they said there weren't enough funds for USDA loans at that time.

    That was 6 months ago.
     
  23. darkxshade

    darkxshade Lifer

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    Holy hell... If he's willing to double his post count just to ask a question, it must be realllly imporant. I think he deserves only straight answers. No messin around. :eek:
     
  24. brandonb

    brandonb Diamond Member

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    I have a USDA loan. I took it because you pay your PMI up front rather than over the life of the loan.

    $100 a month x 12 month x 30 years = $36000
    A $200000 house at 3.5 = $7000.

    Not that it matters if you have a 20% down payment, I believe with 20% you can get out of the PMI. So you'd be better off with the conventional. And the above figure would be $0 for you.

    But I believe what the guy is trying to tell you is this: With how the principle vs interest is paid off on houses, with a lowest interest rate, you'd be paying more off on the USDA loan per month off the principle, so in 10 years, you'd have paid off more of the house so therefore more money in your pocket. It might make up more than the difference of the USDA funds up front. But you'd have to do the math on the interest rate to find out for sure.
     
  25. josh0099

    josh0099 Senior member

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    If USDA lets you put less then 20%, why not take advantage of that and keep some of your money on the down payment and finance a bit of it to keep an emergency fund/invest money else where, since you aren't planning on paying off the mortgage as you want to sell within 10 years. Also since your mortgage interest is going to be tax deductible you should be able to make the difference up with other investments or have the flexibility if something bad does happen to keep your loan payments up from that fund. aka do 10% instead of 20%?