subject: Usda Home Loans - Big Changes [print this page] The USDA is making two major changes to its home loans programs on 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 have not required a mortgage insurance premium (MIP) in the past. That's changing in October, but other changes will make the addition easier to swallow. The current funding fee is at 3.5% of the property price. That 3.5% fee will drop to 2.5% when the new requierments are enacted.
The decline in the funding fee will somewhat offset the 0.3% mortgage insurance payment that will be due on a monthly basis. For instance, on a $100,000 mortgage, the 0.3% fee, or $300 will be added to the yearly mortgage expense for a $25 per month increase.
The mortgage insurance premium is designed to help protect against defaults. 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. Most of the regions that were considered rural when the previous USDA eligibility maps had been created have developed to be more suburban regions. Many of these areas that have grown in population are likely to be removed under the new eligibility maps.
If you live in a truly rural area, no down payment USDA loans are likely to remain in place for you. 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. USDA home loans require no down payment and the credit requirements are not nearly as strict as conventional loans.
It doesn't matter if you're an old hand at buying homes, or a first time home buyer, it's intelligent to consider USDA home mortgages for your property purchase. The rates are extremely competitive and closing costs and the funding fee might be rolled into the mortgage to minimize out of pockets costs and expenses. You will be expected to move into the home using these loans, so they are not good for second or vacation homes.
