Author Topic: USDA Loan Cons?  (Read 14087 times)

Can't Wait

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USDA Loan Cons?
« on: July 31, 2014, 07:46:10 AM »
Does anyone have any experience with a USDA loan? Are there any potential cons to it? If your current income qualifies you for the loan and then your income increases, does that affect the loan or your monthly payment in any way? I've read about a potential subsidy recapture fee if you ever sell the house or pay off early, but I've also read that not all USDA loans have the subsidy recapture fee- How do I tell if my loan will have it or not?

I've presented all of these questions to the loan officer but have yet to hear back so I figured I'd come and ask the experts. We are trying to decide whether or not to go with a USDA loan as opposed to a conventional simply because we can get in with zero down and have a low PMI (its called something else with a USDA loan). This will be a property that we will live in for a few years, then rent out. It's a foreclosure listed 40k below market value and we'd like to use cash reserves to fix the place up as opposed to putting it towards a downpayment.
« Last Edit: July 31, 2014, 08:11:24 AM by GovtWorker »

escolegrove

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Re: USDA Loan Cons?
« Reply #1 on: July 31, 2014, 11:01:58 PM »
I don't know the answer about subsidy recapture. Below little bit about the different types of loans, that I create for one of my blog posts on my website. Hope it helps.

 If your goal is long term rentals with the tenant paying them off. Than the less down is better. Unfortunately there are hidden costs in pmi and funding fees. We used VA loans when we first got started for personals. Now that we have used up that funding source we use conventional 5%. If USDA had been available we probably would have used that source.

FHA-
*First Time Home Buyer Only One Allowed
*3.5% down
* Life time pmi and a funding fee.
*strict appraisal guidelines
USDA
*First Time Home Buyers
*Available in underprivedged areas as deemed by the last census
*Funding fee and pmi
*0% down and is only for 1st time home buyers
*strict appraisal guidelines
VA
*Qualified Veterans
*No 1st Time Homebuyer Limit
*Funding fee (increases after every VA Loan
* to 417k (some high COLA cities are higher), balance above $417k is 25% down
*VA interest rates are the lowest current available
*strict appraisal guidelines

Conventional-
*Available 5%, 10%, 15% and 20%
*PMI is on any loan under 20%
*Available to anyone, it is consider the traditional mortgage.
*Liberal Appraisal Guidelines

ncornilsen

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Re: USDA Loan Cons?
« Reply #2 on: August 01, 2014, 11:28:47 AM »
My brother has been trying to buy some land to run cattle on, and has found that USDA loans take -months- to process and no seller he's encountered has been willing to work with him on that.

It may be different for smaller parcels, but you should find that out.

-Nick

Can't Wait

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Re: USDA Loan Cons?
« Reply #3 on: August 02, 2014, 05:20:50 AM »
My lender tells me not to worry about anything taking any longer than normal with the USDA loan. So who knows.. There seems to be two different USDA loan types - a USDA direct and a USDA guaranteed; I have the pre-approval for the USDA guaranteed and I guess those don't take nearly as long?

Also, I believe that the USDA guaranteed loan does not have a subsidy recapture since there is no subsidy applied to the USDA guaranteed loan. An interest subsidy is only applied to the USDA direct loan.

Either way, I've been pre-approved for a 5% conventional as well but I just wanted to go with the USDA since I can get in with no money down. My goal is to live there briefly and then rent it out. The property just happens to be in an area that qualifies it for the USDA loan, so I figured I'd give that loan a shot. The difference in the monthly payment between the two loans isn't that much.

Handlebar Harry

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Re: USDA Loan Cons?
« Reply #4 on: August 05, 2014, 06:54:59 AM »
I've had a USDA mortgage before and it only took about 60 days to close. I've had no issues with them at all. Maybe that's because after I signed they sold my mortgage to Wells Fargo, but for the 4 week period with them I had no issues... :)

Can't Wait

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Re: USDA Loan Cons?
« Reply #5 on: August 05, 2014, 07:35:13 AM »
Good to hear!

Im learning that the USDA loan is a great option but may not be the best option to snag a bank owned foreclosure in an improving market. Simply because of the 60 day close. We'll see how it goes though.


Handlebar Harry

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Re: USDA Loan Cons?
« Reply #6 on: August 05, 2014, 11:31:05 AM »
Yeah, I hit the same sort of issues before shifted strategies. Unless you have a rehab loan or a lot of cash, it'll be a lot harder to buy a foreclosure. Good luck!

Can't Wait

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Re: USDA Loan Cons?
« Reply #7 on: August 15, 2014, 04:41:06 AM »
Just an update for anyone interested in getting a USDA loan: I was disqualified for the USDA loan program because my stache is too large. The USDA loan is designed for folks with lower income that can't afford to save up enough money for a down payment on a house. If you have enough cash in your bank accounts, etc. to make a 20% down payment, then you get disqualified for the program.

I know the general thinking around here is to put the 20% down if you have the ability but I wanted to go the USDA route since the house is a foreclosure and needs a little rehabbing and the USDA loan allows you to come in with no money down. I wanted to keep my cash reserves readily available to cover the rehab costs.

Poorman

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Re: USDA Loan Cons?
« Reply #8 on: August 18, 2014, 10:38:30 AM »
This is another piece of information that might help anybody trying to decide about getting a USDA loan:

USDA Is a Tough Collector When Mortgages Go Bad
http://online.wsj.com/news/articles/SB10001424052702304371504577406002591760584

If you default and get foreclosed, the US government (your lender) has the authority to garnish your wages, withhold your social security, or keep any tax refunds until the debt is repaid.  The debt doesn't go away until the government is paid back in full or a settlement is reached.

jpeyton

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Re: USDA Loan Cons?
« Reply #9 on: August 19, 2014, 05:44:27 PM »
I'm a former Loan Originator, so I may be able to help a bit.

The main thing I don't like about them has to do with mortgage insurance. Upfront mortgage insurance of 2% is tacked to the loan, plus a 0.4% annual fee, divided into monthly payments. Since most people use USDA because they have no down payment, it means that they are instantly 2% upside down on their house the day they buy it. It's better than FHA right now, but you should factor that it in.