Good news for RD Loans! Fees are going down both the upfront Fee and the monthly! Great time to take advantage of this loan program if you qualify!
USDA Fee Reduction
USDA has announced that there will be a reduction in the cost home buyers incur beginning October 1, 2016. Til now, USDA applicants paid (usually via a financed charge that added onto a loan, starting USDA buyers off underwater in equity) 2.75% of the purchase price of their home (or loan amount, usually the same figure), in addition to an annual fee of .5% of their loan amount (charged monthly). Since USDA offers a $0 down program with relatively low monthly charges (compared to FHA), the program was a sound choice for many buyers in rural areas.
NOW, the up front cost for USDA (that financed fee) will be just 1%, and an annual fee of just .35%. This is a huge savings, and offers tremendous benefit to qualified buyers in rural areas.
To qualify, a buyer must purchase a home in a USDA eligible area (typically urban areas are ineligible, however some eligible areas are usually within a commuting distance to large cities), and make an income that allows them to qualify. Income limits vary by county, and there are great variances from place to place. For example, a 3 person household in the Harrisburg, PA area can have no more than an $84,550 total household income, while in some areas of California that household could make upwards of $112,000 and still qualify. In most areas, income limits are set up to help those households with low to moderate incomes attain the dream of home ownership with little to no money out of pocket.
So how much does this save someone in dollars? Well, it depends on purchase price, but let's just look at the current median sales price in the US of $244,000
A home buyer would save $4270 up front in the form of a reduced "guarantee fee" (reduced from 2.75% to 1%), and a reduced monthly payment by about $30.
This change to USDA charges could be a game changer in that it makes USDA a far better option (from a financial standpoint) than the FHA loan program (currently with a 1.75% up front fee and .85% annual fee) for borrowers that qualify for both. FHA certainly still has a place (allowing for certain niches of credit challenged borrowers who can't qualify USDA, allowing higher debt/income ratios than USDA, and offering special programs for renovations and disaster relief amongst others) -- but for those who qualify for both loan options, USDA is looking extremely nice with these changes.
So, FHA --- ball's in your court
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