In a move designed to make a lasting, positive impact on the levels of home ownership in our country, the United States Department of Agriculture (USDA) Rural Development has drastically reduced the fees it charges to borrowers.
The USDA is a program that provides low- to moderate-income households with an opportunity to purchase a home with 100 percent financing. It is a great program that allows borrowers to achieve the American dream of home ownership with zero money out of pocket, at least up front. However, there are a number of fees associated with the product.
It may seem obvious but I will mention it anyway: The fees that businesses, service providers and individuals collect from consumers are necessary to fund continued operations. This is why this recent news update from the USDA is such a huge, exciting development.
To foster increased levels of home ownership, the USDA has reduced the upfront guarantee fee it charges by more than 50 percent. Previously, a fee of 2.75 percent of the loan amount, this upfront guarantee fee has been changed to just 1 percent, a substantial reduction that will amount to thousands of savings for most borrowers.
The annual fee has also been reduced, from .50 percent to 0.35 percent, of the average scheduled unpaid principal balance. This may not seem like much on the surface, but when you consider that these fees are paid for the life of the loan, it’s easy to see how quickly the savings can add up and why this move from the USDA is important for borrowers.
The changes to the upfront guarantee fee and annual fee structure for the Single Family Housing Guaranteed Loan Program will not go into effect until October 1, 2016, the beginning of the fiscal year 2017 for the USDA. The new fee structure will be available until the end September 30, 2017, end the of the 2017 fiscal.
October might seem like a long way off, but having this much advance notice is a good thing, since it provides borrowers with ample opportunities to identify and resolve any problems that could affect their ability to obtain loans, such as credit issues and unpaid debt. It also provides a nice window of time that could be used to shop for a home and figure out the amount of funds that will be available for purchasing.
Most people realize that USDA loan programs allow borrowers to purchase adequate, modest, decent, safe and sanitary dwellings as their primary residence in eligible rural areas. It is definitely not common knowledge, however, that USDA loan funds can be used to pay for closing costs and other reasonable expenses associated with purchasing, repairs and renovations for existing dwellings, even connection fees for installing utilities such as water, sewer, electricity and gas for which the buyer is liable.
There are many other permissible uses for USDA loan funds, including the purchase of essential household equipment and measures to promote energy efficiency. Of course there are many stipulations associated with the use of USDA funds, and there are many factors that affect the eligibility of loan applicants. As an example, a borrower has to be able to prove that his or her income doesn’t exceed a certain amount. For a full discussion of eligibility requirements and the acceptable use of USDA funds, contact me at the number below. A short conversation can typically result in a thorough knowledge of purchasing power, action items to repair credit issues, and thousands of dollars in savings over the long-term.
Patrick Stoy (NMLS Numbers 39527 and 39166) has 16 years of mortgage lending experience. Patrick is CEO of Wilmington-based Market Consulting Mortgage, which he started in 2005 with a mission to build lifelong customer relationships by providing real value. To learn more about Marketing Consulting Mortgage, visit www.macmtg.com. Patrick can be reached at [email protected] or (910) 509-7105.