USDA Rural Housing loans are seeing a change to the Guarantee Fee! Starting October 1st, the upfront fee will reduced from 3.5% to only 2%. This sounds really good but they are also adding an annual fee of .30%. Let’s take a look at how this works out over time.
If you take $150,000 USDA mortgage, under the old setup your costs over 5 years for the USDA Guarantee would be $6512.14 at a 5% interest rate. The cost would be the difference in what you would pay in payments over the 5 years + the difference in your remaining balance owed versus the same loan without the guarantee fee.
Let’s see how this works out under the new formula. The costs would actually be less over 5 years under the new formula at $5981.06. Your payment would be higher but your remaining balance at the end of 5 years would be signifcantly less.
The longer you have a USDA Rural Housing loan under the new system, the more it would cost because of the recurring annual fee. The easy way to look at it would be if you add .30% to the upfront 2% each year you have the loan, once that number exceed 3.5% you know the new formula is costing you more, but that does’t work out exactly because of the benefit of borrowing less upfront and therefore paying less interest on the loan over time.
USDA still offer buyers a way to get into a home with zero money down so it remains very attractive vs other mortgage products. FHA charges 1% upfront and 1.15% annually… OUCH! Conventional charges zero upfront and is typically .67% annually for a 95% loan to value. Notbad but the 5% down payment is out of reach for some buyers.
We offer FREE Pre-Approvals and USDA program qualification checks! If you would like to get started you can click on the APPLY NOW button above or simple give Olan Carder a call at 980-721-7478. I would love to help!!