Purchase Negotiations Using USDA Mortgage Loans
Best Negotiating Technique When Using USDA Mortgage Loans
Typically, when negotiating on a home purchase contract, many home buyers will offer a price that is lower than the listing price. The idea is to get a deal… a bargain. No matter who we are, we love to negotitate (even if we say we hate it!) However, when you are using a mortgage loan from USDA funds, your strategy may be slightly different.
USDA Mortgages allow 100% financing. As a matter of fact, USDA mortgages are about the only true no money down mortgage loans available today! In addition to 100% mortgage financing, USDA mortgages have no monthly mortgage insurance and enjoy really great rates! If you can qualify for a USDA mortgage, you should really consider it.
The one thing that is different about a USDA mortgage is that instead of monthly mortgage insurance, USDA mortgages require a funding fee. This fee acts much like mortgage insurance as the fee is used to insure potential losses from foreclosures. Currently, the up front funding fee for USDA mortgage loans is 2% of the loan. The best news is that this can be added to the mortgage itself!
Back to the negotiating strategy… When you are going back and forth on the offer to purchase on a home, you have a very unique opportunity in front of you. So many people come in asking for discounts and for the seller to pay closing costs. In more and more cases, using FHA mortgage loans, home buyers are also asking the seller to help pay for the downpayment! In so many cases, a buyer is asking the seller to drop over 10% off the price of the home to accomodate all these requests.
When offering to buy a home using the USDA program, you may want to consider a different approach. Since you won’t need down payment, focus more on asking for seller paid closing costs! USDA mortgage loans do not have a cap on how much a seller can contribute towards closing, so you can use that to your advantage.
For example, rather than asking for 5% off the home and the seller pay 3% towards closing, offer full price and ask the seller to pay 8% towards closing. Why so much? First off, this can help offset the 2% funding fee required by USDA mortgages! And since there is no cap by USDA on how much the seller can contribute, use any additional money you can to buy down your mortgage rate! An extra 1% to buy down the mortgage rate could save you thousands more than a simple price discount on the home!
Ask your mortgage lender for a comparison of rates if you wanted to buy down the mortgage this way. Between your mortgage lender and your Realtor, you will have more than enough information to insure you make the right offer and win!
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Can USDA loans be used to safe a home - re: refinance
@pdavis: USDA refinancing is only permitted when replacing a current USDA loan. So if your current loan is a USDA, you might qualify for a refiance. However, you must also realize that USDA does require decent credit to obtain… not perfect, but decent. If you are in a situation of potentially losing your home, I would assume this also means there are problems with late payments which would most likely disqualify you.
I would consider applying for an FHA mortgage, which is still among the easiest to qualify for. That being said, the days of getting a mortgage with bad credit are gone. With the new stimulus package and housing package Pres. Obama is pushing, there may be additional help there. Hold on as long as you can and look for those alternatives if and when they become available.