Here we go again! More mortgage changes coming to the industry, for the worse. Unfortunately, the former mirror test underwriting (mirror under nose, fogged up, approved!) that was offered a few years ago is now punishing those who actually want to buy a house now. The latest changes are coming soon, to the absolute best mortgage product currently available!
The loan program has many names: USDA loan, Rural Development Loan, Farmer’s home loan. Whatever you want to call it, the Rural Housing Guarantee loan is the best thing since sliced bread! This loan currently allows for 100% financing of the entire sales price, without any monthly mortgage insurance, and allows a seller assist to help pay for closing costs up to 6%! All this for an upfront fee of 3.5% that can be financed on top of the 100% loan for the sale price making it actually, a 103.5% loan-to-value product!!! Unbelievable! Many, many, many buyers have been able to get into homes with no money out of their pocket.
So what is the catch? There are income limits as well as location limits where this loan is available. As per the name, the house must be in a “rural” area as determined by the USDA. You also must meet the income limits that they set forth, meaning you cannot make more money than 115% of the local median income. However, they are rather lenient on credit scores and some lenders have been able to go down to a 580 credit score!
Now, the bad news. Let me preface this by saying, in my opinion, that this will still be the absolute best loan program available, even after the following changes take effect on October 1, 2011. First off, the Guarantee fee will be decreased to 2%, the same level is was prior to 2010. This fee can still be financed so not much of a big deal. The next change is new and has never been applicable to this loan before. from 3.5%. In addition, USDA will adopt an initial annual fee of .3% of the unpaid principal loan balance for the life of the loan. The annual fee of .3% will be based on the outstanding balance of the loan, at the anniversary date of the loan origination, and collected based on an annual period. The .3% will be charged for the life of the loan. This, in essence, is a fee charged to the lender by USDA on an annual basis. It is my assumption that most lenders will calculate this fee each year and collect 1/12th monthly in the form of “mortgage insurance”. For instance, for a $200,000 loan balance, there will be a $600 annual fee, decreasing as the balance decreases, which amounts to a whopping $50/month.
This still beats the crap out of FHA as the the monthly mortgage insurance is 1.15%. That is HUGE! So even with this new annual fee, and offering 100% financing(102% to be exact), the USDA Farmer’s Home Rural Agricultural Development “whatever-you-call-it” loan, is still the best choice out there, for those who do qualify. If you have any questions, just call, text or email me and I will be happy to help. You can also ask questions here.