USDA / Rural Housing just announced that starting October 1st 2011 the USDA up front (one-time) Guarantee Fee will be changing. In addition to this, USDA /Rural Housing will be adding an annual fee to the program.
May 2016 – important updates to the USDA Rural Development Fees. All USDA fees ( both guarantee fee and annual fee) are going to be reduced starting October 2016.
The basics and a little background –
Like all Government home loans (FHA,VA,USDA) the USDA has always required a (one-time) up-front “Guarantee Fee” Other Government loan programs use different names for this (mortgage insurance premium, funding fee) but they are essentially the same thing. Basically this USDA Guarantee Fee serves as a “security net” for mortgage lendersand provides them with an expanded level of protection against future losses. The USDA provides the full faith and assurance of the U.S. government that any financial loss resulting from servicing the loan will be reimbursed in full up to an amount not exceeding 90% of the original loan amount. The USDA/Rural Housing guarantee also allows lenders to sell the loans on the secondary market.
The current USDA up front Guarantee Fee is 3.5% the loan amount. As of 2015 this will be reduced to 2% of the loan amount. The Guarantee Fee is included (rolled into) the home buyers loan.
USDA Annual Fee – In the past USDA home loans have not had or required an annual fee, just the one time Guarantee Fee noted above. However, starting 2015 USDA will assess a .50% annual fee. This will be pretty similar to what most people know as private mortgage insurance or PMI that is required for most home loans when the down payment is less than 20%. One thing to note, this annual fee or “the fee” must be paid for the life of the loan, not only until the loan to value reaches 78% or less. The fee amount is based on the unpaid principle of the loan. The intent of the annual fee is to make the Single Family Housing Guaranteed Loan Program (SFHGLP) subsidy neutral, thus eliminating the need for taxpayer support of the program.
To summarize –
The USDA Guarantee Fee is going down, but a USDA annual fee will be added. So what does this change mean for Florida home buyers looking to take advantage of the USDA loan? In Florida, the average home purchase price (when the home buyer is using a USDA mortgage) is around $120,000. In this example, the total monthly mortgage payment would increase by $10 per month. So you may be asking yourself, why should I use the USDA mortgage for my home purchase?
- Unless you are current or past military – the USDA home loan is the ONLY 100% home loan in Florida for civilians. Even if you are home buyer that has a small down payment (5%, etc) the USDA home loan option should be closely investigated. USDA will always allow a down payment.
- Even with the new annual fee added, monthly mortgage payments will be around $45 per month less when compared to FHA home loans – based on the $120,000 purchase price example above. This is also taking into account the FHA home loan requires a minimum 3.5% down payment.
Please note, the USDA mortgage option is not for everyone and does have certain income and property eligibility requirements. Please click this link here to read more. Florida home buyers thinking about purchasing a house (with USDA loan) in the near future, try to do it before the changes start. Please also keep in mind, all Government home loans are secure and offer safe fix rates terms with no pre payment penalties. Picking the right mortgage option will depend on many variables.
UPDATE: Please read here→ about the latest USDA Guarantee Fee
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Please take time to visit our main web site www.UsdaMortgageSource.com to view all the general 100% USDA home loan program requirements. Proudly serving all of Florida 7 days a week, including Hillsborough County (Tampa, Brandon, Riverview, Ruskin, Valrico, Sun City) USDA Mortgage Source is Florida’s leader in 100% USDA / Rural Development home loans.