FHA Vs. RD mortgage loans?

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Hey, how goes it. I recently applied for preapproval for a loan for a mortgage and was given the advice to not take anything except FHA. This will be my first home as well. They had a checkbox for FHA, but when I went in they said they didn’t do FHA loans, but rather Rural Development. What’s the difference between the two and which would be more prefferred for someone who has zero experience in these matters? Also, they had me at a 6% interest rate, what can I do to lower this to somewhere around 5%, which has been the average in Colorado for a couple months now. Thanks for any advice as this is a purposely confusing world I’m stepping into.
Thank you very much GVD, I was thinking maybe my credit wasn’t up to par, but I figured something fishy was going on. Time to fill out more apps.

  1. Reply
    February 17, 2011 at 1:50 pm

    Rates in Colorado are no where near 6% or even 5%; you are being taken advantage of. There is currently no money out there for USDA RD loans so just forget about it and find an honest lender that will do an FHA for you at a decent rate. 4.5% with normal fees and 4.75% with reduced or no fees is where you should be with a 620 credit score or above.

  2. Reply
    February 17, 2011 at 2:49 pm

    RD is a great program but there are pluses and minuses compared to FHA. RD has both income and area limits. Your income can be no higher than 115% of the median for the area adjusted for family size and the home must be located in a rural area or cities with populations of 25,000 or less but that covers a lot of areas. There are two big advantages to RD – a down payment is not required and they have no monthly mortgage insurance. They have no maximum loan amount other than the amount the borrower qualifies for based on income. Rates should be comparable to the FHA rates. As of today our RD rate is 1/4% higher than FHA but 6% seems quite high in this market. They have also been known to run out of funds for the program.

    FHA requires a 3.5% down payment and also has monthly mortgage insurance included in the payment which adds $ 45 to the monthly payment for a $ 100,000 30 year loan. It does not have income or area limits, but has maximum loan amounts depending upon the area.

    If you want to get into a home for as little as possible check the RD first to see if funds are available and if you and the home qualify. If that doesn’t work, FHA is still a great program..

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