Rural Development - Rural Housing Gets Annual Fee On Top of Decreased Upfront Fee

If you are familiar with the Guaranteed Rural Housing loan offered through the USDA’s Rural Development department, then you know that the loan program does not require the payment of monthly mortgage insurance. They do have an upfront “guarantee fee” that is financed into the loan (although this amount may be paid from the buyers funds at closing).

This will change on October 1^st 2011. Rural Development is implementing a monthly mortgage insurance premium along with their upfront guarantee fee. Currently the guarantee fee is 3.63% of the loan amount and there is no monthly mortgage insurance. October 1^st the guarantee fee will be reduced to 2.00% and a monthly factor of .30% of the loan amount paid over 12 months.

So, what does this mean for home buyers? Here is a comparison:

                            Current          October 1st

Sale Price	$100,000	$100,000
Loan Amt.	$103,630	$102,000
Interest Rate	4.500%	4.500%
Loan Payment	$525	$517
Monthly M.I.	$0	$25
Total Loan Pmt	$525	$542

As you can see, the new monthly payment will be higher by $17….not really a deal breaker.  Especially since this is one of only two zero down mortgage loans in existence!

As a reminder, the Rural Housing loan offers the following features to home buyer:

• $0 down payment
• Low monthly mortgage insurance
• Flexible credit and qualifying ratios (scores down to 600)
• Seller can contribute up to 6% of the sale price towards buyers closing costs
• No pre-payment penalty
• No loan limits
• Some counties have geographic restrictions 
• Income restrictions vary by county

So, even though the monthly payment will be slightly higher on Rural Housing loans after October 1^st, it is still a great option for home buyers!

If you have any question, please feel free to contact me at 810-987-1200. 

This blog is a repost of Jim Papthedore's mortgage blog