USDA Loan Program Changes You Should Know About

By
Real Estate Sales Representative with Capstone Washington Real Estate, LLC

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.

Posted by

The S&B Real Estate Team assists people in buying and selling real estate throughout Southwest Washington. We are proud members of Premiere Property Group, LLC in downtown Vancouver. Our local expertise covers: Vancouver, Battle Ground, Camas, Washougal, Brush Prairie, Hockinson, Ridgefield, Woodland and La Center. If you or someone you know is considering living or investing in Clark County, please contact us. Steve Borwieck can be reached at 360-241-7305. Or drop us a note on the “Contact Us” page at www.ppgwashington.com. We are here to help!

Comments (3)

Rob Lang
At Home Kansas - Shawnee, KS
Local Expert in NE Central Kansas Real Estate Home

That's great!  I hope many people can take advantage of these changes.

Feb 25, 2011 05:32 AM
Robert Rauf
HomeBridge Financial Services (NJ) - Toms River, NJ

Looks like they are getting to be more like FHA... 

Your calculations are just a bit off, USDA calculates the actual financed premium a bit differently, That Darn Uncle Sam Math that just confuses all of us.  As of Today you would actually have a total loan amount of $176,165.   The way the USDA has us calculate that is 170,000/.965 = total loan amount.

That .965 is 100%-3.5%

 

Feb 25, 2011 05:36 AM
John Saari
Worcester, MA
"The Mortgage Buddy"

Nice post Jamie. The USDA loan is such a great product to increase your client range. With all these changes it's nice to have a forum like this to keep us updated.

Feb 25, 2011 05:52 AM