Mortgage Matters: USDA financing a savvy option for right borrower, circumstances (column)
The U.S. 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 purchasing a primary residence in Eagle County to qualify for USDA financing programs, allowing them to purchase homes in the county with no 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. Funds in the bank post-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 all of this to happen.
While USDA financing for Eagle County residents has been available for a number of years, many of the nuances and details of the financing have changed recently. As with any property being financed with less than a 20 percent down payment or equity, mortgage insurance premiums are mandatory with the USDA financing. However, USDA mortgage insurance premiums have been decreasing.
The upfront fee (which is mandatory with all government loans) is down to 1 percent. In addition, the monthly mortgage insurance factor or premium has decreased to 0.35 percent. One nice feature of a rural financing loan is that the loan to value can even be extended to 101 percent to cover the mandatory 1 percent for the use of the loan program.
Both of these mortgage insurance factors are 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 rates. Interest rates on the 30-year fixed loan with the USDA program are a quarter point, if not more, below those of other open-market interest rates.
In addition to the residency requirements, there are income limits in place. These income limits have also recently been increased. Assuming that the household income limit is less than $102,950 (one- to four-member household), the borrowers are eligible.
As with any mortgage financing, credit requirements are in place to determine eligibility. While there is leniency in the minimum score requirements, credit profiles need to be reviewed on a case-by-case basis. The same is true with property types, and most property types are eligible. It is important to note that condominiums without an existing Federal Housing Administration approval must be approved on a case-by-case or spot-approval basis.
As well, it is important for all parties involved with the transaction to understand that the process of applying for and being approved for USDA 100 percent financing can take a little longer than conventional financing.
Before the file can be delivered to the USDA for underwriting, it must go through the full underwriting and approval process with the primary lender on the transaction. Once the primary lender approves the collateral and credit profiles, the file is then sent to the USDA for its underwriting, as well. All of this adds a little bit of time to the process and should be factored in when determining the contractual dates.
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 works for Central Rockies Mortgage Corp. He can be reached at 970-845-7000, ext. 103, and firstname.lastname@example.org.