USDA Home Loans will be having a major change come the fall of 2011…What’s the major change? USDA Loans will now have annual mortgage insurance, which is also known as monthly mortgage insurance (MIP). The change in the program begins October 1, 2011.
The charge will be .30 basis points, look at the example below:
As you can see, currently, there is no monthly mortgage insurance. The monthly fee will be be based on the guaranteed loan amount. You can use simple math and for every $50,000 the monthly mortgage insurance will be be $12.50. For a $100,000 loan amount, your monthly mortgage insurance will be $25.00 a month.
When doing a USDA loan, it won’t be this exact because of the formula that is used, but it will be very close.
The USDA monthly mortgage insurance will always be there, that it will never fall off as long as you have the USDA loan. With FHA loans, the mortgage insurance can fall off when you hit the 78% LTV. There are reasons it may not, but that is a topic for another day or check with your lender.
Another change on USDA Loans
Looking at the chart you can see the Guarantee Fee will lower the payment by $12 a month, but the overall payment will be higher by $24.50 because of the monthly mortgage insurance on USDA loans that will go into effect on October 1st, 2011. The figures used are not 100% accurate, because of the USDA calculations. Example: On a $100,000 purchase with zero percent down and with the USDA guarantee upfront fee of 3.5%, your loan amount would be $103,626, not $103,500. It gets a little complicated and it only changes the payments in these scenarios by less than a dollar.
Summary: The new USDA Loans/changes that will take place October 1st, 2011, will reduce a borrower’s buying power by about $1,400 for every $50,000. There is also a hidden secret in the formula regarding the monthly mortgage insurance. The monthly mortgage insurance payment will decrease every 12 months for as long as you have the USDA loan or until it’s paid off. This reduction is based on the remaining principal balance after each 12 months. As mentioned above, the USDA monthly mortgage insurance never falls off, no matter what LTV (loan-to-value) is established while having the USDA Loan.
Remember that USDA loans are area specific and have income restrictions. USDA loans can’t be used by everyone, unlike FHA Loans, that can typically be used by anyone buying a primary home.
USDA Loans can be used for buying a home in Fernley, Lyon County, Silver Springs and other designated areas.
If you have any questions please let me know, or ask a lender that is approved to write USDA Home Loans.