First time home buyers often simply shop for mortgage interest rates. However, there’s more to the mortgage process and options for home buyers. Did you know you can get a home loan 100-percent financed? Did you know you can save money on the monthly mortgage insurance premiums? Did you know that your credit score affects the loan program you will end up with when buying your house? A mortgage consultant can help home buyers navigate all of these issues and choices. But before you shop around for an expert, let’s look at 2 mortgage programs available, and the differences.
FHA Mortgage Loans
An FHA home mortgage is a federally-insured home loan issued by a lender that the Federal Housing Administration approved. This means that lending institution meets certain requirements in order to issue an FHA mortgage. Looking at some of the benefits, an FHA loan has a low down payment (3.5%) requirement. and generally more liberal qualifications. this means first time home buyers are most often a great fit. FHA mortgages also have lower closing costs most of the time and lower monthly insurance premiums.
Rural Development Loans
The United States Department of Agriculture (USDA) backs Rural Development Loans. The USDA has similar lending guidelines to FHA, but cover properties deemed “rural” by the USDA. While it sounds like you’ll need to “move to the country” for an RD loan, it actually covers many areas near bigger cities. Quite often, smaller towns and villages fall under the RD loan umbrella. The bonus to RD loans is they cover up to 102% of the appraised value of the house.
Some Differences Between FHA and Rural Development
- FHA has: No income limits and no geographic restrictions.
- RD has: Income limits and specific eligibility areas.
- FHA covers 1-to-4 family-unit housing.
- RD is only for single-family housing.
- FHA has a maximum loan-to-value financing of – 96.5% + 1% funding fee for purchases.
- RD’s maximum loan-to-value financing is 100% + 3.5% guarantee fee.
- FHA closing costs: Seller can contribute up to 6% of sales.
- RD closing costs: No limit on seller contribution.
Who is the Winner?
Home buyers looking for the best deal and the best monthly mortgage payments (whether it’s your first home or an upgrade or a step-down) you’ll need to ponder several factors. Some of these factors will include location, the down payment you have available, what kind of mortgage insurance you want to pay and your income level. With that said, there’s no clear winner for everyone between FHA and RD loans. The true winner here is the home buyer. You have the opportunity to figure out which mortgage option you think works best, and then work with a mortgage professional to hone in on the best mortgage program for you.