Is There A Way Around Private Mortgage Insurance?

Ask a few mortgage brokers how to avoid paying PMI, or private mortgage insurance, and you are likely to find out that the agents you are speaking with have never heard of such a thing. Ask them how to get USDA financing and they may be even more confused. Nevertheless, you can avoid paying PMI with a loan from the rural division of the United States Department of Agriculture (USDA).

A Better Loan?

USDA loans offer many benefits. The biggest benefit for most people is 100% financing. Actually, the loan specifies 102% financing with an appraisal to support the numbers. This is so that you can have closing costs not paid by the seller lumped in. Your credit does not have to be perfect and there are fewer restrictions on gifts received if you are getting help from someone financially. In addition, you are not required to carry PMI.

For example, let’s say that you would like to purchase a $100,000 home in a qualifying area. For our illustration this home appraises for $105,000. Since the loan allows for 102% financing of the appraised value, the actual loan amount can be $107,100. If your closing costs are six thousand dollars that puts the loan at $106,000, which is okay because it is under the maximum. Suppose you needed to do some repairs – these can also be included! There are other fees involved with a mortgage, but this example is to illustrate the basics. Now you can see the wonderful opportunity available here.

How Do I Qualify?

The reason that the USDA finances in the first place is to encourage housing and development in rural areas. These areas are determined by population density and there is a maximum limit on annual household income. You may be surprised to find out just how many of these loans are granted. For example, in Texas, for the years of 2001 through 2008, over five and a half billion dollars were granted for over twenty thousand home loans.