Vail Daily column: Rural financing can help local residents
December 2, 2016
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 allow Eagle County residents to purchase primary 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 many 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 payments and monthly debts in the case of emergency. By not having to liquidate investments or come up with large sums of funds for closing on the purchase of a home, borrowers can continue to manage their assets and investments as they see fit and financially prudent. Properly funding retirement accounts, life insurance policies, savings accounts and or education funds is just as vital as financing a home in my opinion.
As with any loan program with less than 20 percent down payment, the USDA Financing requires mortgage insurance premiums. There is a mandatory 1 percent fee to the USDA for the use of the loan program, but the loan amount can be taken 1 percent above the purchase price in order to finance the fee further limiting the amount of money due from the borrower. In addition to the 1 percent upfront fee, the monthly mortgage insurance premium is calculated at .35 percent per month which is well below other open market mortgage insurance premiums. Furthermore, the USDA financing program offers interest rates that are most often below traditional Fannie Mae/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.
Most folks first thought is that this sounds too good to go be true. It’s not, and I can tell you first hand that the loan program has benefited many Eagle County residents. As those who have successfully used USDA loans to finance their home can attest to, the underwriting portion of the process can be arduous. In my opinion, this takes the perceived risk out of a 100 percent financing option.
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I will point out there are certain stipulations or criteria that must be met to be eligible for the USDA financing program. Household income for the borrowers who must work in Eagle County cannot exceed $94,600, the property must also be located in Eagle County and it must be the borrower's primary residence. Financing condominiums with a USDA can be tough to do with many nuances.
Too good to be true?
Most folks first thought is that this sounds too good to go be true. It's not, and I can tell you first hand that the loan program has benefited many Eagle County residents. As those who have successfully used USDA loans to finance their home can attest to, the underwriting portion of the process can be arduous. In my opinion, this takes the perceived risk out of a 100 percent financing option.
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. During that portion of the process, the borrower's income and employment, credit and assets are meticulously underwritten and reviewed to ensure eligibility. Navigating the underwriting of the file is where the experience of a seasoned loan officer is vital. The process of applying for an obtaining 100 percent financing can be tough but worth the time and effort.
With 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.