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Question on FHA/USDA

I am currently trying to get a house and had been approved for FHA at 195,000 with 3.5% down, when I asked about USDA I was told that the automated system wouldn't approve it and I would have to aim for a lot less. My question being is if I have the credit score and income for FHA, why would it be so hard to get approved for USDA at the same amount or at least close? Thanks
  • May 02 2014 - US
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Answers (6)

On top of these other reasons people are posting, USDA includes daycare expenses also which can greatly increase your debt ratios and push you out of qualifying when you would otherwise qualify through FHA.
  • May 02 2014
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You should ask for the GUS Findings from your Loan Officer. I run the GUS (Guaranteed Underwriting System) upfront rather than later like most lenders. I used to be able to push USDA buyers higher than FHA but in January of 2014, the USDA tightened up on the ratios now I get a Ineligible if I exceed 35.99% on the front end ratio or if I go higher that 42.999% on the DTI. Clearly this was disappointing, but I guess the Agency is trying to circumvent any foreclosures in the future.

So you will have to be content going FHA if you want to be approved for a higher sales price unless you go Conventional (which I don't know why you wouldn't). Or you can get into a home with $0 Down Payment USDA RDL, and have a lower monthly payment due to the nearly 1% lower monthly mortgage insurance. It's a trade off my friend. Hopefully the LO you're working with has gone over ALL your options.

FYI: I have a loan program in CA that offers borrowers a 5% Grant (doesn't have to be paid back like CalHFA or CHDAP)  that can be coupled with all loan programs including Conv. Just make sure you explore all your options.

Best of Luck!
  • May 02 2014
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Different loans can have different requirements. USDA loans commonly have lower debt-to-income requirements. This means that you would obtain a lower loan amount these the requirement is more strict when it comes to your income and debt. This is likely why you would obtain a lower amount. The best thing for you to do is to speak with a knowledgeable lender to see if you can get started on financing a new home. If you need additional assistance, feel free to reach out. Good luck!
  • May 02 2014
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Ask your loan officer that you are currently working with what your debt to income ratios are and let us know?
  • May 02 2014
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Great question since USDA is less expensive then FHA! USDA down payment is 0%, whereas FHA is 3.5% and the monthly PMI is 1/3 less then FHA!

In addition to what Dustin mentions about debt to income (DTI) limits, there is also INCOME and PROPERTY limits for USDA. For example in some cities can you can't make over 74K a year in TOTAL household income others locations are higher. If you have more than 4 people living in the home your income can be higher too.

The location of the property is just as important. Here is the website for USDA to see if the property and your income fit within the USDA guidelines. Let me know if I can be of further assistance!

http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do

  • May 02 2014
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USDA has a much lower maximum debt to income ratio than FHA, so it is entirely possible that you are qualified for quite a bit less on a USDA vs an FHA loan.
  • May 02 2014
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