USDA Rural vs Conventional with no monthly PMI

If had a pretty hard time trying to get my mortgage loan closed. I have perfect credit (805) with no debt and optioned a HUD home for a sales price of $135,500. Since the home qualifies as rural and I do too cause of my income ($40K annually) I originally decided to get a USDA Housing Development Rural loan at 3.25% interest. I plan on giving about 8% as down payment which would lower the loan amount to 124,000. Between closing costs and down payment it is about $15,500.

It has taken 2 whole months to get the final steps because of bank delays and I have had to pay already two 15 day HUD sales contract extensions at $25 a day, because of the bank dragging their feet. The bank is ready to submit to USDA Rural, but that will take a whole full month. Since I have about $30K in my account the bank “fears” that I won’t get approved and I might have to resubmit and wait another month for USDA. The bank says I might not qualify because “the max reserve is 20% before closing.” According to the HB-1-3555 SFH Guaranteed Loan Program Technical Handbook, in chapter 5.2 (page 5-3) it states that if I have 20% of sales price plus closing costs in assets I wouldn't be eligable. I'm on the borderline...

The bank has offered me a Fannie Mae Conventional Loan where I would pay just a 2.15% Home Insurance Premium and no monthly PMI, but at 4% interest rate. The current rate for regular conventional loans is at 4%.

I am unsure whether to test my luck, wait another month, pay more extension fees and keep trying rural or go with the new loan offer, where the turnaround time is two days.

Loan amount: $124,000

USDA Rural @ 3.25%: Closing costs + Down payment: $15,5000

Monthly Principal & Interest: $539.65

Mortgage Insurance: $51.21

Hazard Insurance: $31.74

Total Monthly: $622.60

Conventional no monthly PMI @4%: Closing costs + Down payment: $15,5000

Monthly Principal & Interest: $591.99

Mortgage Insurance: $0

Hazard Insurance: $31.74

Total Monthly: $623.73

2 Answers

I know the 3.25% is a sexy rate, but if you're wanting to get this closed, why not do the conventional.....same payment, same costs, I don't see the downside of doing it that way. I can state from numerous past experiences that USDA underwriters can be, shall we say, "fickle", and I wouldn't want to bet a house that your reserves are low enough to meet their guidelines.

Youwill NOT qualify for RD. The bank you're using obvoiusly does very few for it to take 2 motnhs to get into USDA. You qualify for a conventional loan with 20% and no PMI