AboutMeg Ritchey Expertise I can answer questions regarding approval and qualification requirements for FHA, VA, USDA and conventional,(FNMA/FHLMC) residential mortgage loans. I also can answer questions regarding credit scores and rebuilding credit. I cannot answer questions regarding Fed., State or local taxes or tax implications of mortgage financing. I also cannot answer those questions which require special licensing for financial investment in depository accounts, stock accounts or insurance products. Similarly, I cannot answer any real estate questions which require a specific license.
Experience I am a Mortgage Banker. I have been a Residential Loan Officer since 1995. I have successfully assisted more than 1000 people finance home purchases. I specialize in assisting people to buy their first homes. I also enjoy working with those who have experienced some kind of catastrophic event, like loss of job, bankruptcy, foreclosure, death of spouse, catastrophic health issues or divorce and who want to work to strategically position themselves for mortgage loan approval.
Organizations I am currently a member of the Ohio Mortgage Bankers Association. I have periodically volunteered for community groups/events including those involving issues of affordable housing, battered womens outreach, rape crisis intervention and have worked on various boards for nonprofit womens organizations. I also have developed a network of professional contacts within key organizations for referring people who come to me with issues regarding foreclosure, loan modification, bankruptcy resources, credit repair, support for elderly/house bound, estate, tax and divorce advocacy.
Education/Credentials B.A., The Ohio State University
Question Hi,
What is the advantage of a USDA loan over an FHA loan?
Are there any downsides?
Thanks.
Answer I am a big fan of both USDA/Guaranteed Rural Housing and FHA programs. I use them both as much as possible with my customers because they have low down payment requirements, lower mortgage insurance costs and reasonable lending guidelines. They both require a borrower to have a relatively clean credit history, looking mainly at the last two years payment histories with no outstanding collections, bankruptcies or foreclosures. However, each program makes allowances for borrowers who have no credit scores or credit issues caused by extenuating circumstances beyond the borrower's control. These credit situations are judged on a case by case basis.
As you read further, I will list the major points of each program as I use them with my applicants. However, always consult with a Mortgage Professional in your area to answer questions specific to your own circumstances. More information can also be found on each agency's web site. Be sure and check out; www.fha.gov and http://eligibility.sc.egov.usda.gov for information directly from each agency.
FHA can be used for a property in both metropolitan and rural areas which conform to their requirements for property condition, type, appraisal requirements and loan size. USDA has restricted areas in which it will lend.
They both are intended for use by those people who are at or below median income levels for the U.S. Census area in which they plan to buy. FHA uses a maximum loan amount for each area to address those concerns. USDA has actual income criteria which must be met by the applicant. So in that case, the FHA borrower can actually make more money than the median income for the area, but perhaps would need a larger down payment to buy down the loan amount to meet the FHA maximum loan amount limits for their county/metro area.
FHA requires that an applicant invest 3.5% of the purchase price as a down payment. Those funds can be the borrower's own money, a gift to the borrower from a blood relative or a grant from a bonafide non-profit organization that is approved by HUD. USDA does not require a down payment.
FHA has a lowered monthly mortgage insurance premium when compared to a similar loan underwritten to FHLMC or FNMA guidelines. However, with the FHA program 1.75% of the loan amount will be added to the loan in addition to the monthly mortgage insurance. So there is a portion of the mortgage insurance which is financed into the loan. That financed mortgage insurance is called and Up Front Mortgage Insurance Premium or UFMIP. This is only a one time fee, but it is in addition to the monthly mortgage insurance payment. Conversely, the USDA program has only the UFMIP, which is 2% of the loan amount, approximately. But, there is no additional monthly mortgage insurance premium with USDA.
Neither program requires that the applicant be strictly a first-time borrower. FHA allows for one's current home to be sold as a condition to purchasing the new home. My experience with USDA is that one must demonstrate the the borrower's current home is inadequate for his needs. For example, recently we used the USDA program for a borrower whose current dwelling was a manufactured home which was being sold to purchase a home built using traditional "stick-built" construction.
Both the USDA and FHA have similar appraisal requirements. Both feature mortgage options for a fixed rate and repayment terms of 30 years and 15 years. FHA also has options for adjustable rate mortgages. FHA has more types of loans, including money to rehab a property, purchase a multi-unit property of 1-4 units as a primary residence and FHA allows for financing energy efficient improvements like a new HVAC system or increased insulation. Both USDA and FHA have options to refinance existing mortgages for the purpose of improving the applicant's financial situation.
Because there are good reasons for choosing either type of mortgage program, schedule a personal loan consultation with an experienced Mortgage Professional. Buying a home is the biggest investment most people will ever make. Consider choosing a loan which also meets your short and long term financial goals. To also assist your decision, meet with your Financial Advisor to discuss which type of loan best fits your needs. It is mistake to accept the responsibility of a mortgage without doing your homework. You must feel like you are making an educated decision when signing the mortgage documents at closing.
