The United States Department of Agriculture defines Eagle County as being rural per our population count. As many Eagle County homeowners can attest to, this can be a big deal when it comes to residential mortgage financing. This rural classification enables Eagle County residents to qualify for USDA financing.
USDA financing programs allows Eagle County residents to purchase homes in the county with 0 percent down payment. First time homebuyers, and even those homeowners making a change of homes, can really benefit from this aspect. Being able to keep assets in the bank or invested as they are after closing is vital for all homeowners, in my opinion.
Funds in the bank after closing allow homeowners to rest a little easier knowing they have a cushion or reserve fund to cover their housing and monthly debts in the case of emergency. Properly funding retirement accounts, life insurance policies or education funds is also important. Not having to use a lot of funds for closing a transaction can allow this to happen. In fact the loan-to-value can even be extended to 102 percent to cover the mandatory 2 percent fee to the USDA for the use of the loan program.
Furthermore, the USDA financing program offers interest rates that are most often below traditional Fannie Mae and Freddie Mac-offered interest rates. Interest rates on the 30-year fixed with the USDA loan program are a quarter point if not more below those of other open market interest rates. While a monthly mortgage insurance premium is required in addition to the 2 percent upfront fee, the monthly premium is calculated at 0.4 percent per month, which is also well below other open market mortgage insurance premiums.
I will point out there are certain stipulations or criteria that must be met to be eligible for the USDA financing program. Household income cannot exceed $93,450, the property must be in Eagle County, the borrower must be an Eagle County resident purchasing a primary residence, and condominiums may require a 5 percent down payment unless they are already FHA approved.
Most folks’ first thought is that this sounds too good to be true. It’s not, and I can tell you firsthand that the loan program has benefited many Eagle County residents. But the down side was that this summer and spring, the cat was out of the bag, so to speak.
USDA financing was in such demand and underwriting was so backed up in Colorado, it was taking files nearly four weeks to be underwritten from the time they were received at the USDA offices. Before the file is able to be delivered to the USDA for underwriting, it must go through the full underwriting and approval process with the primary lender on the transaction. That portion of the process is three or four weeks in and of itself. Therefore, for most of the spring and summer, it was not uncommon for a USDA financed transaction to take eight weeks to close.
USDA underwriters were simply too inundated and backed up to push files through underwriting any faster. An eight-plus week closing can be a deterrent for many sellers and buyers, and this has been the down side the loan program. However, to the delight of those now pursuing USDA financing, turn times have improved significantly. Currently the USDA is about six business days out on their underwriting portion of the process. This puts the entire transaction back to a potential 45-day closing cycle, which is much more realistic and preferable for all parties involved.
With turn times back to a manageable time frame, lower interest rates and monthly mortgage insurance premiums and little money required for down payment, USDA financing is a savvy and smart loan option for the right borrower and circumstances. As with any mortgage financing, the full scenario must be carefully examined and analyzed to ensure the borrower is in the right mortgage for their needs.
William A. DesPortes of Central Rockies Mortgage Corp. can be reached at 970-845-7000, extension 103, and firstname.lastname@example.org.