United States Department of Agriculture (USDA) Rural Development loans provide 100 percent (no down payment) mortgage financing for homebuyers in areas that are designated as ‘rural’ by the federal government. Following the crash of 2007, these loans had seen dramatic increases in the USDA Funding Fee and in their monthly Private Mortgage Insurance (PMI) structure. But the USDA recently announced that it is rolling
back some of these changes to a more favorable structure. Here, Mark Wells at Preferred Financial answers questions about USDA loans and the upcoming changes.
Who is eligible for a USDA loan?
Anyone can use this program, as long as their income is sufficient to carry the house payment, but not too high based on USDA tables for the county the house is in.
How much income is ‘too high’?
The guidelines are constructed according to family size, but for a family of three or more purchasing in the Upstate area, household income cannot exceed around $74,000 per year.
What other restrictions are there to this program?
The biggest restriction is that the house must be located in a federally designated ‘rural zone.’ In Greenville County, the eligible areas are found north of Wade Hampton Blvd., south and east of Mauldin, and south towards Piedmont. For Pickens and Anderson Counties, rural areas are found in most parts of the counties, except for the City of Easley and the City of Anderson.
What are the changes that USDA has announced?
Both changes improve the PMI (default insurance) structure of the loan: For the past seven years, the USDA funding fee has been equal to 2.75 percent of the loan amount, or $2,750 on a $100,000 purchase. This will now drop back to 1 percent of the loan amount. The monthly PMI premium will drop from 0.51 percent annually ($42.50 on a $100,000 loan) to 0.35 percent annually.
When will these lower costs go into effect?
The new amounts will be in effect for any USDA loan approval issued after September 30.
Do I need to wait until after September 30 to apply for a USDA loan?
Fortunately, no. USDA loan approval is done AFTER the normal lender underwriting approval has been completed. So you could start your USDA loan application any time now, and safely fall under the new guidelines.
Mark welcomes questions and comments and is more than happy to help determine if the house you are looking at qualifies for USDA financing, and to help you determine if you are eligible for a USDA loan. He can be reached 864-235-9596 or via email at Mark@TheGreatestRates.com.