The Guaranteed Rural Housing Program, sometimes called “the USDA loan” will be implementing procedural changes in the upcoming months. On October 1st, 2011, they will be lowering the USDA fee (this is the financed fee that gets added to the loan) from the current 3.5% back to 2% for new applications. Effective with this change will be adding an annual fee equal to 0.3% of the outstanding balance of the loan. So, what’s that mean to your pocketbook?

They’re lowering the up-front (financeable) fee back to the 2%, BUT adding an annual fee of 0.3%. This is similar to how FHA does their fees. This creates a more consistent stream of income on these loans to keep the program funded. Here’s an example of how this plays out:

Previous Scenario:

• Purchase Price: $170,000
• Funding Fee: $5,950 (3.5% of $170,000)
• Total Loan Amount: $175,950
• P&I Payments: $944 /mo

New Scenario:

• Purchase Price: $170,000
• Funding Fee: $3,400 (2% of $170,000)
• Total Loan Amount: $173,400
• P&I Payments: $930 /mo
• New annual fee: $520 (based on $173,400 balance)
• New monthly payments (includes annual fee divided by 12 months): $974 /month

Up front cost difference: $2,550 (lower)

Monthly payment difference: $30 (higher)

Not a huge difference either way but every penny counts! If you’d like to learn more about the USDA loan and how it can serve you, let us know. We know several great mortgage lenders who are well versed in this type of loan. The USDA loan is still one of the best (and last!) 100% financing programs available.

Information provided by Steve Valenta of Pinnacle Mortgage Planning.