An option to homebuyers who use the U.S. Department of Agriculture's Rural Housing Service to get a mortgage could soon see significantly lower fees and pay lower a month for their loan. As the USDA announced that it is about to cut it's loan fees for lenders who use the USDA's Single Family Housing Loan Guarantee Program.
This week USDA sent an announcement to lenders across the nation, stating that the USDA plans to cut the fees it charges lenders. Beginning October 1, 201, the fiscal day of 2017, both the upfront guarantee fee and annual fee will be reduced.
The details of the announcement state that the USDA is set to cut it's upfront guarantee fee from 2.75% of the loan-at-close amount to 1%. In addition, the USDA is cutting it's annual fee from 0.45% of the unpaid principal loan balance to 0.35%.
So lets do an example. For a $200,000 USDA loan, the initial 2.75% guarantee rate stated you paid an additional $5,500 on top of the loan amount. The new 1% guarantee fee now saves borrowers on a $200,000 loan $3,500. Math explained, ($200,000x0.0275)-($200,000x0.01)=$3,500.
Subsequently, the unpaid principal balance each year will be less to the borrower now that the 0.45% annual fee will be reduced to 0.35% of the unpaid balance. Resulting, in more savings to the borrower.
While these fees are charged to the lender by the USDA, these fees are often passed onto the borrower.
So what's the reason for the cut? The USDA stated better borrower performance. According, to the official announcement, the USDA is able to cut the upfront and annual fees because borrower delinquency and foreclosure rates have reached "historic lows" since the beginning of the housing crisis.
USDA loans make up a small percentage of the overall mortgage volume (for example, a mere 0.6% of all new mortgage applications last week were USDA loans, per data from the Mortgage Bankers Association.).
For the current timeframe up until the new USDA rules take effect on October 1st, lenders should contact their respective Rural Development State Office to determine which fee schedule to use on that particular loan.
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