USDA Guarantee Fee Dropping October 2011

Posted on September 28, 2011 by Anthony Bird - Buying a Home, Local Michigan, Refinance

Starting October 1 2011 the USDA guarantee fee will drop to 2% of the total loan amount down from the current 3.5%. The USDA has decided to transition into an annual fee model similar to the FHA (Federal Housing Administration). An annual fee of .3% of the loan amount will be charged on a monthly basis and included in the mortgage payments.

For example, on a $100,000 home purchase, the loan amount will now be $102,000 for the borrower instead of $103,500. The USDA will still offer 100% financing, sometimes called zero down loans, for buyers that purchase homes in rural areas with under 20,000 in population. The USDA program is called a USDA Rural Housing mortgage.

This change will allow the USDA to maintain its funding for years to come. The USDA, unlike the FHA, is self funded and has set limits each year that are often met. When this happens the USDA no longer guarantees the loans for investors until funding is in place for the additional mortgage volume.

For more information on USDA mortgages view the USDA eligibility guide or view our page detailing Rural Housing Loans.

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