Learn the Pros and Cons of USDA Home Loans

Mortgage Protection Insurance Stays on the Loan

Mortgage insurance is referred to as a guaranteed cost by the USDA. You pay a 1% cost that is rolled into your loan amount, and then you pay a 0.35% fee per year. While it isn’t called mortgage insurance, it works the same way.

The 0.35% yearly charge is paid back monthly with your mortgage payment. If your mortgage balance is $200,000, your yearly guarantee cost will be $700, or $58 per month.

This is a tiny price to pay for people who cannot save $40,000 for a 20% down payment. Even with FHA, which requires only 3.5% down, you’ll pay more than twice as much. The annual FHA fee is 0.85%.

With FHA, the identical $200,000 loan will cost you $141.66 per month. Chart illustrating PMI discrepancies.

Primary Residence Only 

Another disadvantage is that the loan can only be used to acquire a primary house. While it would fantastic to be able to acquire a vacation house or an investment property without having to put money down, there is an excellent reason you can’t.

Buying a property without a down payment is hazardous enough for the bank, and second and investment properties are considerably worse. Furthermore, if you already own a home, you may be unable to obtain a rural development loan. If you already own a home, there are severe requirements that govern whether you can purchase a new primary dwelling.

You must be able to prove:

• You’ve outgrown your home owing to family growth

•. You relocated or changed jobs, and the new home is much closer

•. You reside in a mobile home that isn’t tied to real property

• Your home can’t accommodate a family member with disabilities.

If you are unable to meet one of these standards, you will most likely need to apply for another loan program.