Using USDA loans to avoid mortgage insurance

When a borrower puts less than 20% down on a home purchase, federal regulations require that the lender obtain private mortgage insurance (PMI) for that loan.  This raises the monthly payment for the borrower, and it requires additional approvals from the mortgage insurance company.  The lower the down payment the more expensive the mortgage insurance is, and the tighter the guidelines get. There are even situations where a lender will approve a loan, but the PMI company will kill the deal.  Solution: The USDA, 100% financing home loan program. 

Not only does the USDA program require no money down, but there is no mortgage insurance or PMI approval necessary.  The borrower pays a one time guarantee fee which is financed into the loan, and a monthly guarantee fee which is usually lower than  comparable mortgage insurance.  No separate mortgage insurance approval and lower down payment requirements may mean two fewer hurdles between you and home ownership.  Keep this loan program in mind if you are looking for a home in a USDA eligible area.

Baxter Scruggs is a mortgage banker specializing in USDA loans in California, NMLS #156370. He can be reached at bscruggs@guildmortgage.net, or at 760-497-7705, or toll-free at 877-347-0004, ext. 226. Licensed by the California Department of Business Oversight under the California Residential Mortgage Lending Act.  The blog postings on this site represent the positions, strategies or opinions of the author and do not necessarily represent the positions, strategies or opinions of Guild Mortgage Company or its affiliates. Terms and conditions apply, all loans subject to underwriter approval. Subject to change without notice. Guild Mortgage Company NMLS #3274

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