Mortgage Question: USDA vs Conventional

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P

Pablo

Junior Member
Oct 9, 1999
13
0
66
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
 
O

OCGuy

Lifer
Jul 12, 2000
27,224
37
91
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.
 
P

Pablo

Junior Member
Oct 9, 1999
13
0
66
OCGuy said:
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.
Click to expand...

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

BoomerD

No Lifer
Feb 26, 2006
65,991
14,391
146
Patranus said:
Why is the USDA giving out mortgages?

(No wonder this country is broke)
Click to expand...

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."
 
P

Pablo

Junior Member
Oct 9, 1999
13
0
66
OCGuy said:
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.
Click to expand...

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.
 
N

nanobreath

Senior member
May 14, 2008
978
0
0
Pablo said:
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.
Click to expand...

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.
 
M

MikeMike

Lifer
Feb 6, 2000
45,885
66
91
Pablo said:
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
Click to expand...

Mwahahaha, I caught the lurker!!!
 
edro

edro

Lifer
Apr 5, 2002
24,326
68
91
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.
 
B

brandonb

Diamond Member
Oct 17, 2006
3,731
2
0
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.
 
J

josh0099

Senior member
Aug 8, 2004
543
0
76
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%?
 
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