Rural Housing Lending Changes

USDA Loan Guidelines changed October 1, 2011.  

For those of you not familiar with USDA (U.S Department of Agriculture) mortgages, it is a niche product that serves clients who wish to:

live in a designated rural area

take advantage of 100% financing 

take advantage of interest rates competitive with conventional and FHA programs

In the past, the cool thing about USDA loans has been that there is no monthly mortgage insurance that one has to pay.

As we all know, the monthly mortgage insurance on FHA loans has become somewhat expensive.
(Example:  on a $100,000 loan with the 3.5% FHA required down payment, FHA monthly mortgage insurance is now $96.

On USDA loans, there is currently no monthly mortgage insurance.  However, the one catch has been the up front fee on USDA loans.  
The fee is almost always financed into the loan, but it is a hefty 3.5%.   In other words, if you wish to finance the up front fee, a $100,000
amount financed will end up being a total loan of $103,500. 

The changes effective October 1 of this year:

The up front fee will now be reduced to 2%.  That will reduce the $100,000 total amount financed to $102,000.
( For refinances, it will change to a 1% up front fee).
The more dramatic change, however is that effective October 1st, there is now a MONTHLY fee for all USDA loans.
The fee is based on an annual factor of .30%.    (Translation:  On a $100,000 loan, the monthly fee will be $25).

In short, currently if one wants to finance $100,000, the loan amount would be $103,500 if one wants to finance the fee.

(CURRENTLY:) At a rate of 4.25%, that monthly payment(principal and interest) would be $509 per month.

October 1st, same rate of 4.25%, the principal and interest would be $501 per month but also add $25 per month for the mortgage insurance.

(OCTOBER 1:) Total payment would then be $526 per month. That is a pay difference of only $16, but that is only for $100,000 loan.

Get up to a $200,000 amount financed and the pay difference becomes $40 per month higher.

So by speeding the game clock, I decided now to give you the heads up on this.  
By the way, this is not our company guidelines,this is a government USDA guideline change.  
Call me with any questions about these USDA loans and how they work.  
 
Good news:  100% financing is still in place for this loan.

Thank you again for your business.