USDA home loans – changes for October 2011

I post frequently about USDA home loans, because they are a fantastic option for first time homebuyers and low-to-moderate income families pursuing the dream of homeownership. There is no downpayment required, and until now there hasn’t been a monthly mortgage insurance premium.

That is until now…

Upcoming Changes for USDA home loans

On October 1st, the USDA home loan program will be undergoing some changes to the way it works. Here is a brief overview:

The Up-Front Guaranty Fee will go from 3.5% down to 2% – this means the loan amount will go down. This fee is what was charged and rolled into the loan to guarantee the lender against the excessive risk associated with financing 100% of a property’s value.

In exchange for lowering this fee, an Annual Fee of .3% will be added to the loan.

What it means

So your total loan amount will be less than it would have been, but there will be an ongoing guaranty cost. I am being told that this will work much like the monthly mortgage insurance premium on an FHA home loan. At a rate of .3%, and assuming that the fee is spread out over your 12 monthly payments, that means that your payment would go up by $50 a month for a $200,000 balance.

This could make it more difficult to qualify for some people who are riding what I like to call the “DTI train”. That’s my little way of saying that a client is cutting it awfully close on their debt-to-income (DTI) ratio in terms of qualifying for a loan. That $50 dollars a month might put someone over the edge, making them unqualified for a USDA home loan.

Full details of the changes have yet to be released, and I will certainly pass those along when they become available.

If you have any questions regarding USDA home loans in Oregon & Washington, or Real Estate financing in general, feel free to call me at 503.799.4112, shoot me an email at obi-wan_shinobi@homeloanninjas.com, use this quick contact form, or hit me up on Facebook, Google+, or Twitter. I try to be where you are ;-)

And, as always, if you have home loan questions and are in the area around Portland, OR and Vancouver, WA then…

You might also find the following posts helpful:

USDA Home Loans – The Basics

FHA Home Loans – The Basics

USDA Home Loans in Clark County, WA

DTI defined – real examples – Oregon & Washington home loans 

Investor Overlays – USDA home loans & Bankruptcy 

And as always, I welcome your comments below. Thanks!