What are the Differences between FHA and USDA loans?
Is there a Difference between the FHA Loan Program and the USDA Loan Program?
FHA PMI costs rose again in 2013, and many do not realize the overall impact this has on a monthly payment. Now let’s take a look at some changes, and compare FHA and USDA financing.
Differences between FHA and USDA Financing
Taking into account the FHA mortgage insurance premiums increase as of 4/1/13, we can illustrate the key differences with the following example.
$100,000 loan with a 30 year term
- 3.5% down payment
- 1.35% Monthly PMI(Private Mortgage Insurance)
- Equals a $112.50 monthly PMI payment
- The one time up-front financed PMI remains the same at 1.75%, or $1,750 in this example.
- Cannot finance closing costs
- .40% monthly premium
- Equals a $33.33 monthly payment
- One time financed Guarantee Fee is currently 2%, or $2,000 in this example.
- A USDA loan does not require a down payment: Due to the monthly FHA premium being over 3 times higher, the payments on a USDA loan are still lower even without a down payment. This helps save money both up front and out of pocket.
- Ability to finance closing costs when the appraised value is higher than the contract sales price.
Remember, many banks and lenders do not offer the USDA program. So if you have any clients that have only been offered FHA financing, make sure to ask them if they were given the option of a USDA loan. This could help save your clients money, increase their buying power, and create a true customer for life.