USDA Home Loans - Big Changes
Two major changes are being made to the USDA home loans program as of October 1st. 1st, mortgage insurance will be required for USDA home loans as of October 1st for the first time. Mortgage insurance was not required in the past. 2nd, USDA eligibility maps that show areas eligible for USDA home loans will be changed.
USDA mortgages haven't needed a mortgage insurance premium (MIP) in the past. That is changing come October. However, other changes are being made that will make the MIP easier to take. The current funding fee is at 3.5% of the property price. That fee will fall to 2.0% when the new structure goes into place.
The drop in the funding charge will somewhat offset the 0.3% mortgage insurance cost that will be owed on a monthly basis. For instance, on a $100,000 mortgage, the 0.3% fee, or $300 would be added to the yearly mortgage payment for a $25 per month increase.
Protecting against defaults is why the mortgage insurance premium is being introduced. FHA loans have had mortgage insurance premiums for years and this addition for USDA loans makes sense by protecting public funds.
USDA mortgages are targeted toward low to middle income rural and agricultural area families and are guaranteed by the federal government. Many of the locations that were considered rural when the previous USDA eligibility maps were created have grown to be more suburban regions. The new eligibility maps are expected to remove those areas that have grown beyond USDA targets.
No down payment USDA loans are probably going to continue to be available for truly rural areas. However, if the home you want to buy is in an area that has grown beyond 25,000, you may be considered ineligible after October 1st. Even though that area may no longer be eligible, look at the maps to determine if a nearby town is eligible. You may need to move a few miles to find an eligible home.
First time home buyers, who don't have the savings for a 20% down payment can really benefit from USDA mortgage loans. Many of these loans go to first time buyers. In addition, credit requirements are not as strict for USDA home loans and the loans require no down payment.
It doesn't matter if you're an old hand at buying homes, or a first time home buyer, it's prudent to consider USDA home loans for your property purchase. The rates are incredibly competitive and closing costs and the funding fee can be added to the mortgage to keep your out of pocket expenses to a minimum. The USDA targets borrowers who will occupy the house or condo, so buyers of vacation or second homes should look elsewhere.
USDA mortgages haven't needed a mortgage insurance premium (MIP) in the past. That is changing come October. However, other changes are being made that will make the MIP easier to take. The current funding fee is at 3.5% of the property price. That fee will fall to 2.0% when the new structure goes into place.
The drop in the funding charge will somewhat offset the 0.3% mortgage insurance cost that will be owed on a monthly basis. For instance, on a $100,000 mortgage, the 0.3% fee, or $300 would be added to the yearly mortgage payment for a $25 per month increase.
Protecting against defaults is why the mortgage insurance premium is being introduced. FHA loans have had mortgage insurance premiums for years and this addition for USDA loans makes sense by protecting public funds.
USDA mortgages are targeted toward low to middle income rural and agricultural area families and are guaranteed by the federal government. Many of the locations that were considered rural when the previous USDA eligibility maps were created have grown to be more suburban regions. The new eligibility maps are expected to remove those areas that have grown beyond USDA targets.
No down payment USDA loans are probably going to continue to be available for truly rural areas. However, if the home you want to buy is in an area that has grown beyond 25,000, you may be considered ineligible after October 1st. Even though that area may no longer be eligible, look at the maps to determine if a nearby town is eligible. You may need to move a few miles to find an eligible home.
First time home buyers, who don't have the savings for a 20% down payment can really benefit from USDA mortgage loans. Many of these loans go to first time buyers. In addition, credit requirements are not as strict for USDA home loans and the loans require no down payment.
It doesn't matter if you're an old hand at buying homes, or a first time home buyer, it's prudent to consider USDA home loans for your property purchase. The rates are incredibly competitive and closing costs and the funding fee can be added to the mortgage to keep your out of pocket expenses to a minimum. The USDA targets borrowers who will occupy the house or condo, so buyers of vacation or second homes should look elsewhere.
About the Author:
Learn more about a USDA Mortgage and USDA home loans at Steve Jeppesen's USDA Loan Website.