Mortgage Information and insight from a Utah Mortgage Lender.

Saratoga Springs, UT - Rural Devlopment Loans - USDA

 
(A view from Saratoga Springs looking back over Utah Lake at Mt. Timpanogos)

Saratoga Springs, UT

What is the USDA Rural Development Loan?  Many of you have been asking the same question.  It sounds like a loan that an egg farmer would take from the government to improve his chicken coops, and in some cases that may happen on the commercial side.  What many people are now finding out is that the USDA also lends on residential homes located in what is deemed to be rural areas.

Many Utah residents can benefit from these loans as over 2/3rds of Utah is deemed to be "rural".  If you are looking to buy a home in Utah county in one of the following cities then pay close attention as this loan may be your very best option.

Saratoga Springs, Eagle Mountain, Payson, Elk Ridge and Santaquin are all found in the eligible areas for USDA home financing.  Click this link to view the map and read more details on USDA loan programs.

The USDA mortgage is much like FHA in that it does require an upfront fee.  In the case of the USDA loan it is called a guarantee fee instead of FHA's terminology which call's it upfront mortgage insurance.  Ultimately it is the same thing.  The upfront fee from both loans is essentially pooled in a fund that is used to guarantee the lender/investor against any future losses on the loan in case of default by the borrower.

The guarantee fee for new USDA loans is 2% of the loan amount.  In the case of a $200,000 loan the borrower would pay a $4000 one time upfront fee to the USDA to guarantee their loan.  The nice thing about the USDA loan is that much like FHA you are allowed to finance the fee into your loan.  This loan already allows for 100% financing for credit qualifying borrowers whose job history and debt and income are in line with the underwriting requirements.  This is a true 102% loan to value loan when you take in to account the fact that you can finance the 2% guarantee fee above and beyond the price of the home.

What an amazing option for those that have little or no down payment.  If you can save enough money for an earnest money deposit you can be on your way to home ownership.  Debt to income ratios on this loan are lower then conventional and fha loans so you may not qualify for quite as much home with the USDA loan but the USDA loan does not have monthly mortgage insurance so your monthly payment is also lower then it would be on a conventional or fha loan which does require 3.5% or 5% down respectively.

If you are looking to buy a home in Utah County and down payment is an issue, consider the USDA rural development loan, it just might be the ticket you are looking for.

Remember the USDA loan can be used in parts of if not all of Saratoga Springs, Eagle Mountain, Spanish Fork, Payson, Elk Ridge and Santaquin.  If you don't have a down payment, don't give up looking all together tell your agent you would like to expand your search into one of these beautiful cities.  Then lets get you pre-approved for a USDA Rural Development loan today.

Stetson Lowe - www.utahloantips.com

What is "Private Mortgage Insurance" and who needs it?

If you're planning to take out a home loan you may have heard the phrase “private mortgage insurance” thrown around. So what is it and who needs it?

In general, a lender will require you to obtain private mortgage insurance when your home loan is worth more than 80 percent of the purchase price or appraised value of the home.

Basically, most lenders consider the ideal borrower as someone who can fund 20 percent of the home price. This shows that the borrower has significant “skin in the game” - by investing a significant amount of money in the home they demonstrate a high level of commitment to the home and to meeting their loan repayments.

Moreover, it means that should the borrower default on the loan they will have equity in the home which then can be sold and used to pay off a good chunk of the outstanding mortgage. Accordingly, by lending to such a borrower the bank is taking less of a risk than if they lend the same amount of money to a borrower without such equity.

However, the bank won't necessarily refuse to lend to you if you have less than a 20 percent down payment. What they will do to reduce their risk is to require you to purchase private mortgage insurance!

Private mortgage insurance or “PMI” provides security for the bank in assuming the risk associated with lending to someone with less than a 20 percent down payment. This is because if the homeowner purchases PMI and they default on the loan, the insurance company will kick in and continue making interest payments to the lender and in cases of complete foreclosure the insurance company may also be required to pay any deficiency balance that was not covered when the home was sold at auction.  This type of insurance policy all but guarantees the lenders will not lose money on a loan with PMI.

The Federal Government has established regulations governing the imposition of PMI since it presents a significant additional expense for consumers. In particular, the Homeowner’s Protection Act specifies particular rules that lenders must follow in relation to private mortgage insurance. These rules are designed to protect the borrowers and save them money. For instance, when a lender requires you to obtain PMI they must inform you of the amounts you must pay, when you must pay these amounts, the date you can stop paying them, when the PMI will automatically be canceled, your rights to terminate the PMI, and a phone number you can call to cancel the insurance.

Although many home buyers who borrow more than 80 percent of the purchase price of a home must buy PMI, there are also other circumstances where you will also have to pay for such insurance. The most common instance is where you have a poor credit score. A poor credit score means that you are a higher “credit risk” to the bank, such that they will desire you to have PMI.

So how much does private mortgage insurance cost and when do you need to pay it? Well, you will typically be required to pay around .5 percent of the total loan value for PMI. What's more, a lender will usually want the entire first year's premium up front at the close of the home purchase. So if you have a loan of $200,000, your PMI will cost around $1,000. In most cases, you will need to continue paying for the private mortgage insurance until you have paid at least 20 percent of the loan value down. Once you have built this level of equity in the home you will no longer be required to pay for the insurance.

Despite the additional expense presented by PMI – and the obvious attraction of having at least a 20 percent down payment – PMI is not all bad news. In fact, it may be a small price to pay to get into home ownership earlier rather than later. However, it's best to discuss the best strategy – whether it's saving a larger down payment or using a smaller down payment and buying PMI – with your mortgage planner.  Reply to this post under the comments section with any questions you may have concerning PMI.  For an independent review of your current PMI and when you can plan to cancel it email me at stetsonlowe@gmail.com.

Here is a link to a PMI company that I use to quote PMI rates you can shop for your own PMI using their easy pricing engine.

 

In my first few years in the mortgage business I rairly originated a loan with PMI because it was cheaper to do an 80/20 loan.  With the passing of these 80/20 loans PMI is something we are all having to come to terms with.  I hope this post will help you understand the basics of PMI.  The dreaded insurance that WE have to pay for that only BENEFITS the dang lenders!

 

Keeping you informed,

 

Stetson Lowe - The Mortgage Insider - UtahLoanTips.com