Buying A New Home? Which Mortgage Loan is the Best?

Are you in the market to buy a house?  What kind of mortgage loan do you want? The best loan with the lowest rate of course. That is an easy answer. What is not so easy is determining the ins and outs of the various products available. It all depends on several things:

• How much are you paying for your home?
• What down payment are you able and willing to make?
• Where is your home located? Certain products have geographical restrictions like the USDA Rural Housing loan.
• Do you have VA loan eligibility?
• Are you buying a home that will need a Jumbo loan?
• Are you buying a stick-built or manufactured home?

There are so many variables and loan products, each with its own pros and cons that it quickly becomes a mind boggling process.  Over the next few weeks I will feature a different mortgage loan product and discuss the ins and outs of each.  You are welcome to email specific questions to me at mtarleton@englending.com and also visit my website at www.bankofengland.us.

This week’s featured mortgage is the:

USDA Rural Housing Loan

The Good:

• This loan offers 100% financing for qualified buyers.
• It is a government backed loan which means the interest rates are normally lower than conventional loans.
• This loan is geared towards borrowers with low to moderate income levels.
• This loan is a lower cost loan when compared side by side with the FHA loan.

The Bad:

• The property you are buying must be located in an area deemed eligible by USDA and they did not create this program for city slickers.  If you are buying in Bay County there is a good chance the house is eligible.  Areas which are eligible are typically located outside the city limits, but you can find a link to the eligibility maps here:  http://www.bankofengland.us/loanOptions/Featured/RHS%20Loan%20Program/
• USDA also has a maximum income limitation to qualify.  It’s not just your income but the income of everyone that resides in your household whether they are on the loan or not (even the teenage part-time worker).  The link posted above will take you to a page that you can input your information to see if you are eligible based on your income and household information.
• The loan has to be underwritten twice, once by the lender which is usually a 3-4 week process, and then again by the Statewide USDA office. Currently the Florida USDA office in Gainesville is telling lenders to expect 30-40 days for files to be underwritten. That makes the total process start to finish around 60-70 days.
• Does the house you are buying have a pool? If so, USDA will not finance any value to be given to the pool.  It’s not that a USDA cannot be made if there is a pool but the house must appraise on its own merit with no value given to the pool.

The Ugly:

• Since I moved to PCB, I have run across several service members that were made USDA loans rather than VA loans and are now trying to refinance to lower their rates.  Had these people taken out VA loans rather than USDA loans when they bought their houses years ago they would now be much better off because they could refinance them more easily. I’ve seen people with higher rate USDA loans not be able to refinance to lower their rates for a variety of reasons such as (1) they are now making too much money and are over the income limitation threshold, (2) they no longer live in the house (military tend to move every few years), (3) they have married and the household income is too high and over the threshold limit, etc…  However, this should not scare anyone from getting a USDA loan now. There is not much likelihood that rates will ever be this loan again and especially.

One important thing to consider is that while the USDA loan does offer 100% financing, it does not provide financing for closing costs and pre-paid items like insurance and property taxes.

Despite a few items to consider, the USDA loan is still a great loan, especially if you want no down payment.  It is a much better and less costly loan than the FHA loan.  USDA charges an up-front Funding Fee of 2% which is financed into your loan and also charges 0.40% that is paid monthly included in your payment amount. Compare with FHA’s monthly mortgage insurance cost of 1.35% this is definitely the way to go if you and the house you are buying meet the qualifications.

Mike Tarleton
Sr. Mortgage Loan Officer
Bank of England
850-866-2963 (Cell)
706-888-0980 (Cell / Text)

NMLS: 264821